Private equity firm Jana Partners, which in October took a stake in Frontier Communications, is reportedly calling on the company to begin a strategic review that may lead to a possible sale.
According to Reuters, Jana wrote a letter on December 4 suggesting Frontier in its review should consider a sale, strategic partnership or joint venture, as well as consider selling off some non-core assets.
“We wish for the Board to pursue whatever option generates the greatest risk-adjusted return for shareholders,” wrote Jana’s managing partners Barry Rosenstein and Scott Ostfeld. “We believe that a bona fide evaluation of strategic alternatives would lead the Board to conclude that a sale transaction offers the best risk-adjusted outcome for shareholders.”
Speaking at the UBS Global Media and Telecommunications conference on Tuesday, Frontier Executive Chairman John Stratton said the company is “highly attuned to M&A in the strategic landscape in which we operate.”
He didn’t go into specifics about Jana’s call for a strategic review, but he emphasized Frontier has “an ongoing dialogue with our key shareholders.”
“We don’t disclose the content of those conversations publicly. But what I would tell you is this – our board is very much focused on the opportunities that are right in front of us,” said Stratton
He added Frontier is “very willing to explore all alternatives that may be present for us to achieve our number one objective, which is of course to achieve maximum value creation for our shareholders.”
New Street Research has argued it’s too soon for Frontier to consider selling itself. Among other reasons, New Street the operator is “close to fully funded” for its 10 million fiber passings target.
“Frontier has developed the formula for alchemy - in this case, converting copper to gold,” wrote New Street’s Jonathan Chaplin in a note to investors in October.
This summer, the operator closed a $2.1 billion fiber securitization offering covering fiber passings in Frontier’s Dallas market. Stratton mentioned the securitization was for 620,000 passings.
“One of the things that I think was really interesting in our [fiber securitization process was] we had to reveal a lot of specific operating results in the territory we were securitizing,” he said.
Looking at the Dallas market, Stratton said the business there “achieve 46% penetration, 3% or better ARPU growth for the last five years” along with EBITDA “on the range of about 60%.”
He also noted Frontier has had a presence in Dallas for about 20 years. The company this fall actually moved its HQ there from Norwalk, Connecticut.
“If there’s any question about what does our business look like in a steady state…that’s sort of the definition of steady [and] is a pretty good example of what our expectation is for the whole of our business,” said Stratton.