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Frontier Communications Corporation Message Board

  • pvbud pvbud Jan 29, 2010 7:47 PM Flag

    Sage: Is bigger better ?

    FTR is going to issue $5.3 billion in common stock. What's in this for existing shareholders other than for Execs who have gratis share awards? Here is part of the filing:

    "We currently have no restrictions on the payment of dividends either by contract, rule or regulation, other than those imposed by the Delaware General Corporation Law. However, we would be restricted under our credit facilities from declaring dividends if an event of default has occurred and is continuing at the time or will result from the dividend declaration. We are also restricted from increasing the amount of our dividend by the terms of our merger agreement with Verizon."

    With little possibility of increased dividends, with new manamgement integration burden of the Verizon customers, needed capital, accounting and the rest of it, what's in this for existing FTR shareholders? New revenue streams are not apparent, or are they?

    There will be justification for higher FTR Exec salaries and bonus arrangements but without knowing the properties it seems Verizon knows how to better channel their resources. How do you see it?

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    • pvbud-Tough to say if bigger is better, but it is inevitable. New revenue streams to be bundled services. This is FTR's business model. FTR feels that offering these packages will add to income stream. VZ has neglected these customers for many years. IMHO FTR is a better steward for these lines than VZ. Post merger yield of 10% still puts FTR in the top tier of S&P companies. Debt-to-equity also drops to near investment grade post merger. I like the position FTR will be in after the deal goes down. You own FTR for the yield, and maybe someday they get bought for a 30% payday.

      • 1 Reply to sage2123
      • Sage, you may be correct. Obviously, FTR management agrees with you. Frankly, I’m not optimistic. Another $5.3 BILLION in common stock will have a chilling effect on dividend requirements and if the dividend cannot be maintained as a result of the added debt and declining customers, the market price of common will drop, new depreciation of plant notwithstanding.
        Revenue may be increased by “bundling,” as you indicate. On the other side, revenue will be lost by customers continually moving to cellular as we see throughout the landline communication industry. To reverse this trend FTR must do something different and more effective than we see with WIN, CNLS, or Q, all significant companies. That requires Capital. When you add the delay and uncertainty of revenue control by utility commissions and exposure to the effect of increased cost of money nationally by the Fed, and the fact that FTR’s management has never before operated an enterprise of this size, FTR may be risky business in search of dividends.

        Verizon is judging that they are better positioned by taking back FTR’s common, whatever the risk, than to operate the properties. That does not set a positive going forward market tone for an eventual sale of FTR, in my view. Anyway, we’ll see what happens. Good luck and good wishes

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