Frontier Agrees to Internal Review

Frontier Communications logo | Image by Frontier Communications

Dallas’ Frontier Communications has authorized a strategic review of its performance as a publicly traded company about two months after investment firm Jana Partners pressed it to consider selling.

“As Frontier enters the next phase of its evolution, we believe that there are opportunities to create additional value for our shareholders,” the company announced on Monday.

“Accordingly, the Board and management team are executing a formal and comprehensive review process of all opportunities to unlock shareholder value, including continued optimization of our operational and financing strategy, strategic partnerships, joint ventures, divestitures, mergers, and business combinations.”

In the same announcement, Frontier said it has appointed Woody Young to its board of directors.

“We are delighted to welcome Woody Young to Frontier,” Executive Chairman John G. Stratton said in the statement. “Woody brings decades of experience as an investment banker in the telecom industry, as well as deep operational and financial expertise. We look forward to benefitting from Woody’s insight as we build the leading provider of fiber internet access in America and drive shareholder value.”

Young is the former chairman of mergers and acquisitions at Perella Weinberg Partners. He has also worked as co-head of global telecommunications, media, and technology at Lazard.

In a letter to Frontier’s board of directors on December 4, Jana Partners questioned the company’s performance, stating, “[W]e believe that a bona fide evaluation of strategic alternatives would lead the Board to conclude that a sale transaction offers the best risk-adjusted outcome for shareholders. … A Board-led review of alternatives is certainly preferable to an unnecessarily distracting campaign to force this warranted action.”

“As we have expressed publicly and in direct conversations with the Company, we believe Frontier’s equity is grossly undervalued and that it will continue to underperform if the Board maintains the status quo,” the letter reads.

“Accordingly, we are calling on the Board to immediately commence a comprehensive review of strategic avenues for shareholder value creation, including evaluating a sale transaction, a strategic partnership/joint venture, and/or the divestiture of non-core copper passings to accelerate Frontier’s transition to a pure-play fiber provider. In our view, delaying implementation of corrective actions until next year after the planned investor update reflects a lack of urgency shareholders can ill afford.”

Jana Partners further alleges that Frontier “has failed its shareholders as a public company,”

“Frontier continues to be held largely by the same credit funds it emerged with post-restructuring. In fact, since the beginning of 2022, Frontier has managed to attract only two new top 20 shareholders other than JANA Partners. Frontier’s failure to attract new fundamental investors more than two years after its reorganization is even more alarming given many dynamics that would typically garner significant investor interest and attention.”

Frontier exited bankruptcy more than two years ago.

“Since we began this turnaround in 2021, the team has successfully executed our fiber-first strategy,” Stratton said in the Frontier announcement. “Over the last three years, we have doubled our fiber footprint, rapidly expanded our fiber customer base, achieved year-over-year EBITDA growth in 2023, and completed a landmark fiber securitization transaction.”

Jana Partners maintains that Frontier’s “ability to reverse its decline in the public market by attracting new investors faces multiple structural impediments,” including:

  • A highly complex and leveraged balance sheet that only a credit investor could love (and understand) that is unlikely to improve in the medium term;
  • A debt-funded, capital-intensive growth strategy coming at the expense of free cash flow, which analysts do not expect to turn positive until 2027;
  • Frontier’s past being marred by poor performance and the bankruptcy filing itself, biasing portfolio managers and sector research analysts against reinvesting in the company;
  • The ongoing complexity and business risk stemming from the transition from copper to fiber; and
  • An uncertain FCC regulatory environment.

“While it should be self-evident that the status quo has fallen short by failing to deliver value for existing shareholders and not attracting new ones, Frontier nevertheless continues to express publicly its supreme confidence in its strategy and execution,” the letter reads.

“Even more perplexing than the Company’s expectation of a different result from the same strategy is the fact that, despite their professed confidence, neither the Board nor management has made a single open market purchase of Frontier stock in nearly two years — while Frontier’s shares declined by more than 50%.”

Frontier is among several companies that moved its headquarters to Texas between 2020 and 2022.

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