Consolidated snaps up FairPoint for $1.5B, adds 3K on-net buildings, fiber to the tower footprint

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Consolidated Communications is acquiring FairPoint Communications for about $1.5 billion in stock, deepening its business and consumer customer footprint. The boards of directors at Consolidated and FairPoint unanimously approved the acquisition.

Upon closing, Bob Udell will continue to serve as president and CEO of the combined company and one director from the FairPoint Board will join the Consolidated Communications Board of Directors. The combined company will retain the Consolidated Communications name and will be headquartered in Mattoon, Illinois.

On a pro forma basis, the combined company generated more than $1.5 billion in revenue and $566 million in adjusted EBITDA before synergies, or $621 million after synergies for the 12 months ending Sept. 30, 2016. 

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Consolidated said it expects the combined markets to strengthen the telco’s growth opportunities, enhancing its scale with a fiber-rich network that will extend across 24 states. 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.

David Tawil, president of Maglan Capital, said in an e-mail to FierceTelecom that Consolidated is a good candidate to purchase the assets.

“This a great result,” Tawil said. “Consolidated is a very strong partner and the assets will be complementary.”

Maglan Capital, which owns a minority stake in FairPoint, said in June that the company should consider selling itself off, initiating a share repurchase program or issuing a recurring dividend for shareholders.

Deepening fiber reach

A key element of this acquisition is that Consolidated will enhance its fiber network holdings. Charlotte, N.C.- based FairPoint has operations in 17 states with a large fiber network in northern New England.

By acquiring FairPoint, Consolidated will gain a 21,000 fiber route miles fiber network—17,000 of which are in Northern New England—bringing its total route miles to 35,000. In tandem with increasing its fiber miles, Consolidated will enhance its on-net building and fiber-connected towers to 8,500 and 2,400, respectively.

As a result of the expanded fiber footprint, Consolidated will be able to provide up to 32 markets with access to Ethernet connections capable of symmetrical 1 Gbps speeds.

“We think the significant investment that FairPoint has already made in their core fiber network positions us well to make investments consistent to our strategy of making fiber network through smart builds and see our consultative sales approach as fitting nicely with the combined capex availability we’ll have as we integrate the companies,” said Bob Udell, CEO and president of Consolidated, during the call announcing its acquisition of FairPoint.

Consolidated will have an expanded set of common assets across its three customer groups: Consumer, large carriers and enterprise.

“Our strategy is around leveraging assets across our three groups and solving network oriented technology problems for our customers whether it is large carriers, wireless carriers or large enterprise customers that act and buy like carriers,” Udell said. “That’s why we rolled out the cloud service bundle and shifted our sales strategy to being more consultative and focusing on solving business problems.”

Enhancing broadband

For consumers, the service provider plans to expand its customer portal interface to allow customers to purchase and provision services.

“On the consumer side, we have rolled out self-serve portals to make that revenue more profitable and de-emphasizing legacy video with more over the top options and unifying them around a more efficient interface with our portal roll out,” Udell said.

The service provider can also leverage and potentially expand FairPoint’s existing FTTH network that it gained from Verizon to roll out 1 Gbps in select areas like Portsmouth, New Hampshire.

Udell said that upon closing the FairPoint acquisition, a key focus will be on enhancing broadband speeds across its broader footprint and leveraging its own capital and money from the CAF-II program.

“FairPoint is well positioned for us to focus on upgrading speeds,” Udell said. “The CAF dollars are going to the right places and our focus will be to keep our story for investors as predictable as possible while putting capital where we think the best return can be and look at priorities on a region basis and that will include: 'How do we accelerate speed upgrades?'”

Broad M&A experience

Consolidated expects to achieve $55 million in run-rate synergies via its acquisition of FairPoint. That target is set to meet or exceed corporation sites in each market even outside of the northern New England footprint. The telco has a record of exceeding synergy targets.

“In conducting our due diligence, we invested heavily in doing a detailed analysis of all of FairPoint’s markets, including the non-Northern New England areas that are good opportunities for edge out and growth as well,” Udell said. “One of the observations we had is that FairPoint has done an excellent job in building a top notch fiber network that caught our attention as we got closer to this about 18 months ago if it made sense to work and come together.”

Consolidated has become very experienced in acquiring and integrating various companies into its fold, a trend that’s continued to pick up pace at the telco over the past decade. Following its acquisitions of TXU and North Pittsburgh in 2004 and 2007, respectively, Consolidated grew bolder with its acquisition moves.

In 2014, Consolidated reached a deal to acquire Enventis for $350 million, giving it an instant presence in Minnesota and the Dakotas. The deal gave Consolidated a 4,200-mile fiber network that spans Minnesota, Iowa, the Dakotas and western Wisconsin.

Earlier, Consolidated made its first large purchase of Roseville, California-based SureWest in 2012 for $340.2 million. The SureWest deal gave Consolidated an additional 130,000 residential subscribers and 15,700 commercial businesses in the greater Kansas City and Sacramento regions.

But Consolidated’s M&A strategy is not just about large deals. The service provider is also just as keen on acquiring regional providers that it can effectively tuck into its operations with additional on-net building fiber.

One example of this trend is its acquisition of Champaign, Illinois-based CTC. By acquiring CTC, Consolidated gained 275 fiber route miles and 310 lit buildings to its existing fiber network which extended to Champaign, a community that's located only 50 miles north of the telco’s Mattoon, Illinois, headquarters.