FairPoint Communications (Nasdaq: FRP) is facing a new challenge from Maglan Capital, who wants to gain a larger presence on the telco's board of directors. The firm said it will propose to replace three of the company's directors at the next board meeting this spring.
Maglan, an investment fund that owns a 6.2 percent stake in the telco, told the board in April that it they should sell more of their rural telecom assets outside of Northern New England.
In February, the telco completed its sale of Idaho-based network properties to Blackfoot Telecommunications for about $30 million.
Selling its Idaho properties was part of a move to grow the company and enhance profitability, particularly in its core New England markets of Maine, New Hampshire and Vermont.
The telco said in a prepared statement that it continues to hold discussions with Maglan and "welcomes input toward the goal of improving long-term value."
"We are pleased with our significant progress executing on our four pillar strategy to enhance sustainable value for all FairPoint shareholders and we will continue to act in the best interests of FairPoint and its stakeholders," FairPoint said.
David Tawil, co-founder of Maglan Capital told FierceTelecom that while selling the Idaho assets is a good start, they need to consider divesting other rural properties.
"They really need to get on the bandwagon on selling those smaller telecom properties they own spread across the Midwest," Tawil said. "It's not part of their core business, and there's no more efficiencies they can squeeze out of those businesses."
While FairPoint has made progress to improve its business since emerging from bankruptcy protection, Tawil said they also need to handle their cash differently and issue a dividend.
"At this point, they are generating a fair amount of free cash flow and they have to look like every telecom company," Tawil said. "They have got to look more like CenturyLink (NYSE: CTL), Windstream (Nasdaq: WIN), Frontier (Nasdaq: FTR), AT&T (NYSE: T) and Verizon and issue a dividend because they're not going to get valued the way those other guys get valued."
Tawil added he thinks that the telco wants to "keep as much flexibility as they can going into negotiations with the unions."
The service provider and the International Brotherhood of Electrical Workers union have been at odds since 2010 when FairPoint hired a non-union company to do work on its New York properties.
According to a report in vtdigger.com, the collective bargaining agreement, which FairPoint and the IBEW negotiated when it acquired Verizon's northern New England network in 2008, said it could not outsource work to non-union companies.
Overall, FairPoint continues to make considerable progress in becoming a profitable company. In Q3 2013, it reported that revenues grew $1.5 million sequentially to $236.0 million.
A key factor in the revenue mix was Ethernet, rising to $16.4 million as retail and wholesale circuits grew 57.8 percent year-over-year.
Regardless of the progress made, Maglan said in a letter that "FairPoint will only be able to unlock its significant intrinsic value once it demonstrates a meaningful and firm commitment to return capital to shareholders."
- WSJ has this article
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