Frontier Communications Corporation (NASDAQ: FTR) today
announced it has entered into a definitive agreement to sell its
operations and all associated assets in Washington, Oregon, Idaho,
and Montana to WaveDivision Capital, LLC (WDC) in partnership with
Searchlight Capital Partners, LLC (Searchlight) for $1.352 billion
in cash subject to certain closing adjustments.
Frontier’s operations in these states serve more than 350,000
residential and commercial customers as of March 31, 2019 and
account for $619 million of revenue, $46 million of net income and
$272 million of Adjusted EBITDA1 for the twelve months ending March
31, 2019. The transaction is subject to regulatory approvals and
other customary closing conditions, with closing anticipated to
occur within one year.
“The sale of these properties reduces Frontier’s debt and
strengthens liquidity,” said Dan McCarthy, Frontier President and
Chief Executive Officer. “We are pleased to have a buyer with
extensive experience building and operating advanced fiber-based
communications assets in these regions. We will be working very
closely with the new owners to ensure a smooth, successful
transition for our customers and the communities we serve.”
WDC, headed by broadband entrepreneur Steve Weed, is based in
Kirkland, Washington, and brings extensive technical,
organizational, and management experience in building and operating
residential and business next-generation fiber networks.
“We are excited to be partnering with Searchlight on this
opportunity to acquire Frontier’s operations in the Northwest,”
said Steve Weed, CEO of WDC, and Founder and former CEO of Wave
Broadband. “We have a proven track record of customer satisfaction
by providing fast, reliable internet connectivity combined with
great service and support. Having grown up in the Northwest, I’m
excited to be able to continue to serve my community through this
new venture.”
“Searchlight is pleased to have reached this agreement with
Frontier,” said Eric Zinterhofer, Founding Partner of Searchlight.
“We are excited to partner with Steve and his team, who have an
outstanding track record of building best-in-class fiber networks,
and who will enable us to accelerate the deployment of superior
next generation products for our residential and business
customers.”
Additional Transaction Details
Frontier will continue to operate the business and serve
customers with existing products and services until the transaction
closes. WDC and Searchlight have formed a new company to operate
the business and honor existing customer commitments and contracts
after the transaction closes.
Under the terms of the transaction, Frontier will receive $1.352
billion in cash at closing subject to certain adjustments,
including working capital as compared to an agreed target, and
certain pension and retiree medical liabilities. Frontier has also
agreed to provide certain transition services to the new ownership
group following the closing.
The transaction is subject to regulatory approvals by the
Federal Communications Commission, the U.S. Department of Justice,
the Committee on Foreign Investment in the United States (CFIUS),
applicable state regulatory agencies, and certain local video
franchise authorities.
Frontier was advised by Evercore and Cravath, Swaine & Moore
LLP. WDC and Searchlight were advised by Bank of America, Credit
Suisse, and Deutsche Bank and Paul, Weiss, Rifkind, Wharton &
Garrison LLP.
Additional Details of Frontier Operations
Across the four states, Frontier’s network passes 1.7 million
residential and business locations, of which approximately 500,000
are fiber-to-the-premises capable. As of March 31, 2019, Frontier
served approximately 150,000 fiber broadband, 150,000 copper
broadband and 35,000 video connections in these states.
About Frontier Communications
Frontier Communications Corporation (NASDAQ:FTR) is a leader in
providing communications services to urban, suburban, and rural
communities in 29 states. Frontier offers a variety of services to
residential customers over its fiber-optic and copper networks,
including video, high-speed internet, advanced voice, and Frontier
Secure® digital protection solutions. Frontier Business™ offers
communications solutions to small, medium, and enterprise
businesses. More information about Frontier is available at
www.frontier.com.
About WaveDivision Capital
Founded in 2003 by broadband entrepreneur Steve Weed,
WaveDivision Capital (“WDC”), headquartered in Kirkland, WA, is a
private investment firm focused on the broadband industry. Steve
was founder and CEO of Wave Broadband, and the managing directors
of WDC, Harold Zeitz and Wayne Schattenkerk, were formerly the
President and CFO, respectively, of Wave Broadband, which grew to
one of the largest broadband companies on the West coast, until its
multi-billion dollar sale in 2018. WDC’s goal is to bring better
internet connections to more homes and businesses throughout North
America. WDC’s current investments include Hargray Communications,
Xplornet Communications, MetroNet, and RCN/Wave/Grande. You can
learn more about WDC at www.wavedc.com.
About Searchlight Capital Partners
Searchlight is a global private investment firm with offices in
New York, London and Toronto. Searchlight seeks to invest in
business where their long-term capital and strategic support
accelerate value creation for all stakeholders. For more
information, please visit www.searchlightcap.com.
Non-GAAP Financial Measures
Frontier uses certain non-GAAP financial measures in evaluating
its performance, including EBITDA and Adjusted EBITDA, each of
which is described below. Management uses these non-GAAP financial
measures internally to (i) assist in analyzing Frontier's
underlying financial performance from period to period, (ii)
analyze and evaluate strategic and operational decisions, (iii)
establish criteria for compensation decisions, and (iv) assist in
the understanding of Frontier's ability to generate cash flow and,
as a result, to plan for future capital and operational decisions.
Management believes that the presentation of these non-GAAP
financial measures provides useful information to investors
regarding Frontier’s financial condition and results of operations
because these measures, when used in conjunction with related GAAP
financial measures (i) provide a more comprehensive view of
Frontier’s core operations and ability to generate cash flow, (ii)
provide investors with the financial analytical framework upon
which management bases financial, operational, compensation, and
planning decisions and (iii) present measurements that investors
and rating agencies have indicated to management are useful to them
in assessing Frontier and its results of operations.
A reconciliation of these measures to the most comparable
financial measures calculated and presented in accordance with GAAP
is included in the accompanying tables. These non-GAAP financial
measures are not measures of financial performance or liquidity
under GAAP, nor are they alternatives to GAAP measures and they may
not be comparable to similarly titled measures of other
companies.
EBITDA is defined as net income (loss) less income tax expense
(benefit), interest expense, investment and other income, and
depreciation and amortization. EBITDA margin is calculated by
dividing EBITDA by total revenue.
Adjusted EBITDA is defined as EBITDA, as described above,
adjusted to exclude certain pension/OPEB expenses, restructuring
costs and other charges, stock-based compensation expense, goodwill
impairment charges, and certain other non-recurring items. Adjusted
EBITDA margin is calculated by dividing adjusted EBITDA by total
revenue.
Management uses EBITDA and adjusted EBITDA to assist it in
comparing performance from period to period and as measures of
operational performance. Management believes that these non-GAAP
measures provide useful information for investors in evaluating
Frontier’s operational performance from period to period because
they exclude depreciation and amortization expenses related to
investments made in prior periods and are determined without regard
to capital structure or investment activities. By excluding capital
expenditures, debt repayments and dividends, among other factors,
these non-GAAP financial measures have certain shortcomings.
Management compensates for these shortcomings by utilizing these
non-GAAP financial measures in conjunction with the comparable GAAP
financial measures.
Forward-Looking Statements
This press release contains forward-looking statements pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of
historical facts may be forward-looking statements. When used in
this press release, the words “believe”, “expect”, “could”, “may”,
“would”, “will”, “trend” and similar words are intended to identify
forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements that relate to
Frontier’s future prospects, developments and business strategies,
as well as Frontier’s sale of operations and associated assets to
WDC. We caution you to not place undue reliance on these
forward-looking statements, as they speak only as of the date they
are made. Except for the company’s ongoing obligations under the
U.S. federal securities laws, the company does not intend to update
or otherwise revise the forward-looking information to reflect
actual results of operations, changes in financial condition,
changes in estimates, expectations or assumptions, changes in
general economic or industry conditions or other circumstances
arising and/or existing since the preparation of this press release
or to reflect the occurrence of any unanticipated events.
Many factors and uncertainties relating to the proposed
transaction, our operations and our business environment, all of
which are difficult to predict and many of which are outside of our
control, influence whether any forward-looking statements can or
will be achieved. Any one of these factors could cause our actual
results or the impact of the acquisition to differ materially from
those expressed or implied in writing in any forward-looking
statements made by Frontier or on its behalf. Such factors related
to the completion and impact of the proposed transaction include,
but are not limited to, statements related to the amount of cash
Frontier will receive at closing, the ability of the parties to
obtain regulatory approvals and meet other closing conditions, and
Frontier’s strategy to reduce debt and operate its ongoing
business.
For additional information on other factors related to
Frontier’s business that could cause our actual results to differ
materially from expected results, please see our filings with the
Securities and Exchange Commission, including the company’s Annual
Report on Form 10-K for the year ended December 31, 2018 and any
subsequent reports on Forms 10-Q and 8-K.
1 See “Non-GAAP Measures” for a description of this measure and
its calculation. See Appendix A for a reconciliation to net
income/(loss).
APPENDIX A
Frontier Communications Corporation
Washington, Oregon, Montana and
Idaho
Reconciliation of Non-GAAP Financial
Measures (unaudited) Trailing 12 months
For the quarter ended For the year ended As of
($ in
millions)
March 31, 2019 March 31, 2018 December 31,
2018 March 31, 2019
EBITDA
Net income $ 23 $ 22 $ 45 46 Add back Income tax expense 7 7 14 14
Interest expense - - 1 1 Operating income 30
29 60 61 Depreciation and amortization 36 41
150 145
EBITDA $
66 $
70 $
210
206 Add back: Pension/OPEB expense 2 2 7 7
Restructuring costs and other charges 1 1 1 1 Goodwill impairment
- - 58 58
Adjusted EBITDA $
69 $ 73 $ 276 272
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version on businesswire.com: https://www.businesswire.com/news/home/20190529005579/en/
Frontier CommunicationsINVESTORS:Luke SzymczakVice President, Investor
Relations(203) 614-5044luke.szymczak@ftr.comMEDIA:Javier MendozaVice President, Corporate
Communications(562) 305-2345javier.mendoza@ftr.comorBrigid
SmithAssistant Vice President, Communications(203)
614-5042brigid.smith@ftr.comWDCMEDIA:Phil Sgro(206)
264-2400wavedc@rhstrategic.com
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