In its bid to acquire funds for its massive network upgrades, AT&T Inc decided on Tuesday to exit from its Connecticut wireline assets and sell them to Frontier Communications for a $2 billion cash transaction. After Frontier said the acquisition deal will increase its dividend payouts, incur savings in the process and improve its adjusted free cash flow, its shares rose over 8% in the market.
Reuters said in its report that regional operators such as Frontier are looking into strategic acquisitions in order to grow amidst customers disconnecting their home phones to subscribe to wireless services instead, On the other hand, AT&T has already expressed to diviest some of its non-strategic wireline assets as it is dependent on wireless technology for their own growth.
Citi analyst Michael Rollins said Frontier's acquisition of AT&T's wireline assets in essence allowed the regional telephone operator to have additional customers coming from the the biggest US phone company, and in the process, would boost the valuation of Frontier.
Rollins said, "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." He also added that Frontier's share could rise up to $5.15 per share due to the strategic acquisition.
On Nasdaq in mid-afternoon trading, shares of Frontier saw a $0.36 increase at $4.77 per share.
AT&T said the decision to divest was its need to have a source of funding for its ongoing wireless and wireline network upgrades. On the other hand, Reuters noted in its report that aside from selling its wireless towers for $4.83 billion to Crown Castle, the deal with Frontier will help the phone company in its global ambitions to expand in Europe.
The deal, said AT&T will not be affecting its wireless consumer and business clients in Connecticut as it plans to continue with its services. Moreover, the divestment will not affect the phone company's results for 2013 as it does not expect sizeable changes to its VIP network upgrade project, AT&T added.
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