Hedge funds circle a $20bn telco deal
Hedge funds that specialise in distressed situations don’t often find themselves at the centre of a $20bn deal. But that’s exactly what’s taking place with Verizon’s bid for Frontier Communications.
A group of investors that received equity through Frontier’s bankruptcy process are now in a position to vote on one of the biggest M&A deals of the year.
The transaction is probably headed for a showdown on Wednesday during the scheduled shareholder vote. Several big investors in the fibre network company have already said they plan to vote against it, and are instead demanding that Verizon bumps up its offer.
One significant flashpoint arrived last week with BCE’s proposed $3.6bn acquisition of Ziply — a telco with a fibre network similar to that of Frontier.
The Frontier investors have told Verizon and the Frontier board that the valuation in the Ziply deal implies a far higher purchase price because of the long-term growth prospects for fibre broadband service. (BCE was also a final bidder for Frontier, sources tell DD.)
The shareholders’ calculations show that the company’s projected growth makes its shares worth more than $50 a share — far higher than the deal price of $38.50.
Glendon Capital Management and Cerberus Capital Management are among the investors angling for a higher deal price, DD’s Amelia Pollard and Sujeet Indap report.
But it’s not entirely clear where another major shareholder stands.
Ares Management, the private credit giant and Frontier’s single-biggest shareholder with around a 15 per cent stake, hasn’t said which way it plans to vote. (It did hire boutique bank Houlihan Lokey to evaluate options.)
Meanwhile, Verizon doesn’t seem to be budging. When the deal was agreed in September, the offer represented a 44 per cent premium over Frontier’s trading range at the time.
Frontier, for its part, has said that if the deal doesn’t go through, it’ll return to its strategy as a standalone business. Today, we’ll be keeping a close eye on who blinks first — or if the vote’s postponed.