The wireless carrier, Verizon Communications Inc. (VZ, Financial) is all set to pay its debts and buy back shares after getting into the purchase of more airwaves; and to deal with this the company has agreed to sell its landline assets and towers in two different deals.
The deals would give the company a good sum of $15.6 billion. The company has been doubling its wireless business, while reducing its expenditure on broadband internet and telephone services.
The happy buyers
The landline assets are to be sold to Frontier Communications Corporation (FTR, Financial), across California, Florida and Texas, for $10.54 billion cash. Frontier’s acquiring will include 3.7 million voice connections, 1.2million FiOS video connections and 2.2 million broadband connections. A $1.9 billion tax benefit would be received by Frontier as part of the transaction.
“Over 50 percent of these networks are fiber to the home so these are outstanding assets in high-growth areas,” said Maggie Wilderotter, chief executive officer of Frontier in an interview. Verizon had signed a similar deal with Frontier in 2009. It sold 4.8 million rural phone lines to Frontier for $8.6 billion in cash and stock.
American Tower Corporation (AMT, Financial) is slated to buy over the rights into its wireless towers assets from Verizon for a whopping $5.056 billion in cash. Verizon said it would lease more than 11,000 towers and sell 165 towers to the Boston-based American Tower Corporation. American Tower says it will now have access to “the largest wireless communications real estate portfolio” in the U.S. having more than 40,000 towers.
The acquisition comes as “demand for mobile bandwidth by U.S. consumers is expanding dramaticall,y” said the chief executive officer of American tower, Jim Taiclet, in a news release. ”We believe that by aggressively marketing these relatively under-utilized towers to additional tenants, we will enable faster deployment of this spectrum, accelerating the expansion of broadband coverage throughout the U.S.“
The deal with American tower is expected to complete in the first half of 2015, while the one with Frontier is likely to get closed in the first half of 2016. In late trading Verizon soared as much as 1.1 percent to $48.41. Frontier added 14 percent, while American Tower rose less than 1 percent.
The proceeds …
The sale of the assets would help the New York-based company to pay for the airwaves which it won in U.S. spectrum auction. The value of the above mentioned waves are more than $10 billion. Apart from paying its debts, the company would be using the proceeds to repurchase about $5 billion in stock.
Verizon announced that about 11,000 employees will move to Frontier. After the closure of the deal, the landline territory of Verizon would shrink to nine east coast states and Washington D.C. The remaining landline operation will have 4.5 million FiOS TV subscribers, 7 million high speed internet lines, and 16.1 million phone connections.
Conclusion
Citi (C, Financial) Investment Research Analyst Michael Rollins said that the selloff spree at Verizon is a positive development for the communication giant, although he kept a neutral rating on the stocks.
The deal on the wired line sale was advised to Verizon by Credit Suisse (CS, Financial), Guggenheim securities and PJT partners. Its legal advisor on the Frontier deal was Debevoise and Plimpton, and is subjected to regulatory approval. The tower deal with American Tower Corporation was advised by TAP Advisors, Guggenheim and JP Morgan (JPM, Financial).
