Frontier Communications Corp. (FTR) has a proven track record of integration, and should be able to quickly absorb Verizon Communications Inc.'s (VZ) rural assets, according to Frontier Chief Executive Maggie Wilderotter.
While the deal is structured as a tax-free spin-off and merger, Frontier will have to raise roughly $3.3 billion in funds through a debt offering, the proceeds of which will be paid to Verizon. Even though Frontier is raising debt, the acquisition of Verizon's assets allows the company to approach investment grade rating, she said during a conference call on Tuesday.
Verizon Chief Executive Ivan Seidenberg said he sees the deal creating value for both sides, noting that he expects approval to happen in a year.
Verizon has paid less attention to the rural areas as it focuses on wireless, FiOS and its global enterprise businesses. Chief Financial Officer Donald Shassian said he does expect revenue decline in the 3.5% to 4% range with the Verizon territories before the company takes over.
Wilderotter noted that the deal will be accretive to Frontier on a free cash flow basis by the second year, noting the $500 million in merger cost savings.
Further value could be created by building out high-speed Internet access to Verizon's territory, which could yield more revenue for the company, Wilderotter said.
"Rural America is our business," she said, noting the company's "manical focus on local."
One of the biggest integration hurdles is the conversion of billing systems from Verizon to Frontier. Wilderotter said she is confident that the conversion will be smooth. She added that ahead of the deal closing, Frontier will set up its products, promotions and offerings in the Verizon system.
"We can hit the ground running," she said.
Wilderotter said she doesn't foresee any problems with the unions representing the 11,000 Verizon employees moving to Frontier.
