Consolidated Communications Holdings, Inc. (NASDAQ: CNSL) says it has agreed to buy FairPoint Communications, Inc. (NASDAQ: FRP) for approximately $1.5 billion in stock, including debt. The company says it also sold its Enterprise Services equipment and IT Services business to ePlus Technology inc. Terms of the latter deal were not disclosed.
The FairPoint acquisition, which Consolidated expects to close by mid-2017, will provide additional residential broadband and business services reach. FairPoint operates in 17 states, thanks in large part to a pair of transactions with Verizon (see "Verizon and FairPoint agree to merge operations in northern New England" and "Verizon to sell certain wireline assets to Frontier, lease wireless tower rights"). The company operates a fiber-optic network of approximately 21,000 fiber route miles, 17,000 route miles of which are in northern New England. FairPoint had approximately $830 million in revenue for the trailing 12 months ended September 30, 2016. It has approximately 2,600 employees.
The company had a hard time integrating the Verizon assets and found itself filing for Chapter 11 protection in 2009; it exited bankruptcy early in 2011 (see "FairPoint exits bankruptcy"). It turned a profit in 2015.
"This transaction combines two companies with extensive fiber networks and complementary strategies focusing on being the leading business and broadband solutions provider," said Bob Udell, president and chief executive officer of Consolidated Communications. "This merger positions Consolidated to leverage its extensive product and services portfolio and consultative sales approach across 24 states, bringing advanced solutions and a better experience to customers. We are well positioned to ensure a smooth transition for customers and employees as we leverage a solid track record of successful integrations."
The transaction is expected to generate annual operating synergies of approximately $55 million, which are expected to be achieved within two years after completion of the merger. Udell will continue to serve as president and CEO of the combined company, which will retain the Consolidated Communications name and headquarters location of Mattoon, IL. One director from FairPoint's board will join the Consolidated Communications board of directors.
The sale agreement calls for FairPoint shareholders to receive a fixed exchange ratio of 0.7300 shares of Consolidated Communications common stock for each share of FairPoint common stock. The exchange ratio equates to a premium of 17.3% to the 30-day average exchange ratio as of December 2, 2016. After closing, FairPoint's shareholders will own 28.7% of the combined enterprise.
On the ePlus transaction, Consolidated has agreed to a strategic partnership with the nationwide systems integrator to cross-sell both broadband network services and IT services. Consolidated's Enterprise Services equipment and IT Services business, which was acquired when the company bought Enventis in 2014, contributed approximately $55 million in revenue to fiscal 2015.
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