AT&T to sell Connecticut wireline assets to Frontier for $2 billion
By Sinead Carew
(Reuters) - AT&T Inc, the biggest U.S. phone company, said on Tuesday that it would sell its wireline operations in Connecticut to regional telephone operator Frontier Communications for $2 billion in cash, to help fund network upgrades.
Frontier shares rose more than 8 percent after it said the deal would boost its dividend payout ratio, generate savings and improve its adjusted free cash flow.
Since many people are disconnecting home phones in favor of wireless services, regional operators such as Frontier have had to look to acquisitions for growth. AT&T, which depends on wireless for growth, and has said it would look to sell non-strategic wireline assets.
Citi analyst Michael Rollins said the addition of AT&T customers would help boost Frontier's valuation.
"With broadband penetration above Frontier's average already, we view the transaction as largely a financial opportunity for Frontier to present better near-term free cash flow metrics," said Rollins, who said its shares could rise as high as $5.15 as a result of the deal.
Frontier shares were trading at $4.77, up 36 cents in midafternoon trade on Nasdaq.
Credit Suisse analyst Joseph Mastrogiovanni said the price implies an enterprise valuation of 4.8 times earnings before interest, tax, depreciation and amortization for the phone lines and compares with a multiple of approximately 4.5 times for assets Verizon Communications sold to Frontier in 2009.
Atlantic Equities analyst Chris Watts said it made sense for AT&T to exit its Connecticut wireline business as it is the only state in the U.S. Northeast where it operates traditional phone service. Its main operations are in the South and Midwest. Continued...