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Verizon, Frontier in Deal for Wirelines
By Kevin Kingsbury
The Wall Street Journal
Wednesday, May 13, 2009

Verizon Communications Inc. agreed to sell 4.8 million access lines in 14 states to Frontier Communications Corp. for $5.25 billion in stock, tripling that company's size and making it the nation's largest communications provider focused on rural areas.

The deal comes as smaller companies look to either bulk up or sell out to larger concerns while firms such as Verizon are looking to focus on faster-growth wireless and broadband services.

Verizon shareholders will receive the stock issued by Frontier for the purchase, not Verizon itself. They would own between 66% and 71% of Frontier after the deal closes, slated for within 12 months.  The amount of equity issued will depend on the stock price in the 30 days before closing, but the per-share price of the $5.25 billion will be collared between $7 and $8.50.  Frontier closed Tuesday at $7.57.

Frontier Chairman and Chief Executive Maggie Wilderotter said, "This is a truly transformational transaction for Frontier.  With more than 7 million access lines in 27 states, we will be the largest pure rural communications provider of voice, broadband and video services in the U.S."

She also expressed confidence "we can dramatically accelerate the penetration of broadband in these new markets during the first 18 months."

Verizon has been losing landlines for some time, both to divestitures and customers cutting back.  The figure stood at 35.2 million as of March 31, down 9.8% from a year earlier.

Through the deal, Frontier will assume some $3.33 billion in stock and expects to generate some $500 million cost savings, or 21% of the expenses of the Verizon assets being sold.  In addition, Frontier will pay an annual dividend of 75 cents a share after closing.  That compares with a quarterly payout of 25 cents a share to current shareholders.

Some 11,000 Verizon workers will move to Frontier.

Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com
http://online.wsj.com/article/SB124221398580814777.html?mod=djmr_octuse6purl6