FairPoint Communications
(NYSE:FRP) is one step closer to its purchase of Verizon's (NYSE:VZ)
land lines businesses in Vermont, New Hampshire and Maine. The $2.47
billion deal will provide FairPoint with 1.48 million access lines -
more than eight times the company's current 248,000 lines. The
telecommunications company hopes that this deal will give them a larger
footprint in key markets; however, many investors are concerned that
the transaction will put the company in a weak financial position.
The
majority of the concerns over the deal stemmed from unions representing
the bulk of Verizon's workers in the three states who are worried that
the $1.7 billion in debt assumed may hinder promised investments and
endanger the workers' pensions and benefits. Meanwhile, other
shareholders are worried that the large acquisition will necessitate
additional infrastructure spending that will significantly impair the
company's financial condition.
FairPoint executives addressed
these concerns on Thursday by reassuring investors that the existing
$1.2 billion revenue stream from Verizon's operations in these states
will support operations, capital improvements, dividends and interest
on debt. Management also predicts that the transaction will be
immediately accreditive to the company's earnings. Many large
investment banks have also offered opinions on the transaction that is
being spearheaded by Morgan Stanley.
Overall, the transaction
should significantly increase FairPoint's footprint in the Eastern
United States while increasing the company's revenues. Management's
estimates also suggest that the transaction will leave the company in a
strong financial position. Plans do not always turn out perfect,
however, so investors should pay close attention to the company's costs
through the process. In the end, this is a big move by the company that
could either reward shareholders with a much larger entity or hurt them
with excessive debt.
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