An investment firm based in Australia says it will vote to block a proposed acquisition of Frontier Communications by Verizon.
On Tuesday, two portfolio managers for Melbourne-based Cooper Investors said Verizon’s offer of $38.50 per share “significantly undervalues Frontier as a standalone entity and fails to adequately compensate stockholders for the anticipated synergies that would be created by the transaction.”
The portfolio managers say Cooper Investors owns around 800,000 shares of Frontier and have held positions in the company since 2021.
In September, Verizon announced it would acquire Frontier through an all-cash transaction valued at $20 billion. The goal of the merger was to expand Verizon’s fiber broadband footprint across the United States. Frontier is a pure-play fiber broadband Internet service provider with 2.2 million customers across 25 states.
This week, Cooper Investors said it typically enjoys a cordial relationship with Frontier executives, which was renewed during a trip to Dallas this summer, several months before Verizon and Frontier announced their intention to merger.
That cozy relationship is “why we were disappointed to learn that, at the direction of the company’s board of directors…management will not be speaking with investors until after the upcoming stockholder vote on the proposed transaction,” the portfolio managers wrote.
In the absence of an opportunity to voice their concerns, the investment firm opted to send a letter to Frontier’s board of directors, which the company published in a regulatory filing on Thursday.
The letter said Frontier’s best and most-financially lucrative days are ahead of it, given that executives have worked over the past three years to build out the company’s fiber broadband Internet offerings while mitigating the effects of pandemic-related inflation.
For this reason, Cooper Investments believes Frontier’s valuation is between 24 and 62 percent above what Verizon is offering to pay for the company, the portfolio managers said. They noted that Frontier is expected to reach an additional 10 million potential customers across its service footprint by 2026, which is when the Verizon-Frontier merger is expected to close.
A better approach would be to allow Frontier to exist as a standalone company, independent of Verizon or anyone else, and to fully capitalize on its fiber build out that rewards shareholders for their investments.
“Given the embedded value in Frontier, we question why the board has agreed to support the proposed transaction when the value-maximizing opportunity appears to be remaining as a standalone public company and executing on the current strategy,” the letter said.
Cooper Investors is the second group to express concern over the proposed merger. Earlier this week, Reuters reported Glendon Capital Management also voiced opposition to the deal, for many of the same reasons. Glendon Capital is the second-largest owner of Frontier’s stock.
