Update: Frontier Acquisition From AT&T

Aug.14.14 | About: Frontier Communications (FTR)


Frontier receives Connecticut approvals and reschedules closing of acquisition from AT&T.

Opinion about improved of dividend coverage remains unchanged.

Acquisition was anticipated to close in second half of 2014.

This past week Frontier Communications (NYSE:FTR) filed two 8Ks indicating that it is moving forward with its acquisition from AT&T (NYSE:T). The purchase includes AT&T's local exchange operations and statewide fiber network that provides services to residential, commercial and wholesale customers in Connecticut along with AT&T's Connecticut U-verse video and satellite TV operations. These announcements came on the heels of the late July approval of the purchase by the FCC that was discussed in a previous article.

The first 8k noted that Frontier reached agreement with the Connecticut Attorney General and Office of Consumer Counsel for its acquisition, and laid out some of the conditions for the purchase. These conditions included "that for a period of not less than 36 months after the closing of the transaction (i) there will be no increases in the basic primary residential rate in effect for transferred exchanges as of the closing date; and (ii) where available, Frontier has agreed to offer its basic broadband and stand-alone basic broadband product at or below Frontier's current prices" in addition to capital investments totaling $63 million during the 2015-2017 period. The second 8K, filed August 14th, incorporated an amendment (dated August 13th) to the purchase agreement and established a closing date of October 24th.

While I did not expect the price cap restrictions, the acquisition is still anticipated to improve the company's free cash flow and increase its coverage of the dividend. The amendment solidifies the expectation that the transaction will close during the fourth quarter.

Disclosure: The author is long FTR, T. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I also have covered calls written against a portion of my FTR holdings and may sell additional covered calls or close the position and re-allocate the funds to T or VZ