Tag Archives: ftr

Frontier Downgraded By Citi On Post-Verizon-Deal Synergies

Citigroup downgraded Frontier Communications ( FTR ) saying synergies expected from its acquisition of residential lines in three states from Verizon Communications ( VZ ) may fall short of consensus estimates. Verizon’s sale of wireline assets in California, Florida and Texas for $10.5 billion to Frontier is expected to close by March 31. Verizon, No. 4 on the latest IBD Big Cap 20 list of top-performing big-cap stocks, is aiming to strengthen its balance sheet ahead of an auction of radio spectrum controlled by local TV stations, which is slated to begin this month. Verizon, which acquired AOL last year for $4.4 billion, also has stated interest in acquiring parts of Yahoo ’s ( YHOO ) Internet business. Citigroup analyst Michael Rollins on Wednesday lowered his rating on Frontier to sell from neutral. “We are lowering our pro-forma OIBDA (operating income before interest tax, depreciation and amortization) outlook for Frontier,” wrote Rollins. “Our study of the company’s last two acquisitions suggests net synergy realization is much lower than the guided gross synergy figures. We do not think the emerging consensus is discounting the guided synergy contributions enough.” Frontier stock was up 21% in 2016 through Tuesday, though it has a mediocre IBD composite rating of 68. But shares were down more than 5%, near 5.30, in early trading in the stock market today . AT&T ( T ), No. 2 on the IBD Big Cap  20 and an IBD Leaderboard stock, is the highest-rated phone company in IBD’s Telecom Services-Integrated group. AT&T’s cash flow has been bolstered by its acquisition of satellite TV broadcaster DirecTV. Frontier will assume $600 million in debt as part of the deal Verizon deal, involving former GTE assets in California, Florida and Texas. In 2010, Verizon sold Frontier 4 million phone lines in 14 states for $5.3 billion. Frontier in 2013 acquired AT&T’s wireline assets in Connecticut for $2 billion in cash. Both AT&T and Verizon have been shedding residential lines as well as noncore assets such as cellphone towers. Verizon stock was up a fraction in early trading Wednesday, near 53 and within range of a 51.30 buy point first touched Feb. 25. Image provided by Shutterstock.

Verizon: Yahoo Vulture Or White Night Bearing AOL Synergies?

Yahoo ( YHOO ) stock slid 3% the past week, even though telecom  Verizon Communications ( VZ ) has talked up its interest in buying some Yahoo assets “at the right price.” That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June. Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s. Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms. (Verizon hasn’t hired bankers and there have been no formal talks, according to reports.) If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba ( BABA ). Verizon Balance Sheet May Be Challenge Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already? Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating. Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group ’s ( VOD ) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt. Verizon expects the sale of residential wireline assets in  California, Florida and Texas to Frontier Communications ( FTR ) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority. Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later. At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.” That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines. UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.” Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars. Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.”

Verizon: Yahoo Vulture Or White Knight Bearing AOL Synergies?

Yahoo ( YHOO ) stock slid 3% the past week, even though telecom  Verizon Communications ( VZ ) has talked up its interest in buying some Yahoo assets “at the right price.” That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June. Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s. Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms. (Verizon hasn’t hired bankers and there have been no formal talks, according to reports.) If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba ( BABA ). Verizon Balance Sheet May Be Challenge Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already? Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating. Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group ’s ( VOD ) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt. Verizon expects the sale of residential wireline assets in  California, Florida and Texas to Frontier Communications ( FTR ) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority. Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later. At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.” That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines. UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.” Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars. Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.”