consolidated-fairpointAn announced Consolidated FairPoint merger will create the ninth largest fiber provider in the U.S., according to company executives. The transaction is part of a rapidly consolidating broadband industry where carriers are looking to build scale and acquire fiber infrastructure.

By acquiring FairPoint, Consolidated will double its pro forma revenue and EBITDA. The total transaction value is approximately $1.5 billion, including FairPoint debt, and will be an all-stock transaction.

“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 in a press release.  “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.”

Consolidated does get considerable infrastructure assets through the transaction, including:

  • 21K fiber route miles
  • 3K on-net buildings
  • 1,300 fiber connected cell towers
  • 377K voice connections
  • 325K data and broadband connections

Consolidated FairPoint Merger
Post-merger, Consolidated’s revenue mix does shift, and some would argue not for the better. Pre-merger, 83% of Consolidated’s revenue came from broadband and business services. Post-merger, that percentage drops to 72%, and legacy services revenue (residential voice) grows to 27%, from 10%.

The trend with these mergers is to try to lessen legacy revenue dependency and grow broadband and business revenue. That’s obviously not happening here, but Consolidated is building significant scale with the transaction. Consolidated CEO Bob Udell addressed this issue on a conference call announcing the deal.

“I’ll remind folks of our strategy and it’s leveraging common assets across three customer groups, carrier, commercial, and consumer and we’ve got a long legacy of experience in transitioning the markets we serve and we feel that we’re in a great position by acquiring this asset at the right time of its evolution,” he said. “With our experience, we feel very fortunate that we’ve been able to temper revenue conversion or erosion on the consumer side.”

consolidated fairpoint merger

Combined Consolidated – FairPoint Network (Source: Consolidated)

A combined Consolidated FairPoint will now operate in 24 states with a 35,100 route-mile fiber network. They’ll have 8,500 buildings on-net, serve 2,400 fiber connected cell towers, and over 1.6 million customers.

Consolidated has a history of growth from acquisition including buying North Pittsburgh, SureWest, and Enventis in the past. Consolidated executives cited this history and their ability to quickly integrate acquisitions as a result. They expect to achieve $55 million in cost savings synergies over the next two years.

This Consolidated FairPoint merger joins a growing list of mergers within the broadband industry, which should keep the FCC staff quite busy, right in the middle of a new Trump administration transition. Among a slew of smaller deals, there are CenturyLink-Level 3, Zayo-Electric Lightwave, and Windstream-Earthlink to deal with.

Under the terms of the agreement, FairPoint shareholders will receive 0.7300 shares of Consolidated stock for each share of FairPoint common stock.  That gives FairPoint shareholders a 17.3% premium to the 30-day average exchange ratio as of Dec. 2, 2016.  After closing, Consolidated’s shareholders will own about 71% of the combined company, with FairPoint shareholders owning the remainder.

Bob Udell will retain the position of president and CEO of the combined company and headquarters will be in Matoon, Illinois. The transaction is expected to close by mid-2017.