We've seen how Verizon
But, guys, did you have to make the transaction so darn complicated and dilutive?
This move will triple Frontier's customer base, which will jump from 2.3 million accounts to about 7 million if and when the deal closes later this year. For Verizon, that's a drop in a bucket holding 35.2 million land lines today. Verizon's wired markets will gain tighter focus around the attractive FiOS service. "All of Verizon's remaining local landline operations have high concentrations of FiOS in more densely populated markets," said Verizon CEO Ivan Seidenberg.
Seidenberg added that "This transaction is an attractive way to add value through a special distribution to our shareholders." OK, Ivan, but is it worth the dilution? Concurrent with the deal, Verizon shareholders now own over 68% of Frontier.
It's predominantly a stock-based transaction wherein Frontier gives Verizon's shareholders about one freshly minted Frontier share for every 4.2 shares of Verizon stock. Verizon itself gains $3.3 billion of value from cash distributions, debt securities, and Frontier's assumption of some debt associated with the acquired assets. Verizon spins off the operations in question, which then immediately merge into Frontier. Snip, snap, all done. The company makes a quick buck, but I'm not so sure about its shareholders.
This reminds me of when Disney
Citadel and Frontier share a couple of important traits: Both came up with obtuse spin-off-and-merge dances of some kind. Hefty debt loads change hands at the closing. And their market caps are smaller than the price paid for their new assets.
I see no reason why this transaction would work out better for Verizon's owners than the radio deal did for Disney holders. Feel free to tell me why I'm wrong (or right) in our CAPS comments system. Your fellow investors will appreciate the input.
Fool contributor Anders Bylund owns shares in Disney and a pitiful pittance of a Citadel Broadcasting position, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.