Investment firm Maglan Capital has written to FairPoint Communication's board of directors and CEO Paul Sunu, asking the company to consider selling itself, initiating a share repurchase program, or issuing of a recurring dividend for shareholders.
Maglan, which claims ownership of 7.5 percent of FairPoint's common equity, wrote the letter to call out a "serious discrepancy" between FairPoint's improved financial performance and its current market valuation.
"It is our view that this discount is directly linked to the Board's failure to act in ways that protect and enhance shareholder value and reward shareholders for the Company's successes," Maglan wrote in the letter.
While praising FairPoint's "enormous strides" in stabilizing revenue and positioning the company for growth, Maglan criticized the company's board for lacking a sense of urgency as FairPoint's stock traded below its telco peers.
Maglan said FairPoint's current enterprise-value is 5x projected 2016 EBITDA, among the lowest in its peer group, while comparable companies are valued in a range of 6x to 9x+ EBITDA.
"Therefore, the stock represents a tremendous value play. At a 6x valuation, FairPoint's share-price would be $23, or over 75 percent higher than the current price," Maglan wrote, adding that FairPoint's stock has lost 35 percent of its value since the company successfully renegotiated its CBAs and hit a share-price peak in early 2015.
"FairPoint has achieved monumental operational-related accomplishments over the past 5 years, which culminated with the successful renegotiation of the CBAs in 2015, reducing the company's long-term debt by over $700 million," Maglan wrote. "The company's bottom-line and top-line achievements are remarkable. The company is now overdue on turning its attention directly to shareholders, in ways that other wireline telecom companies do."
To that end, Maglan suggested FairPoint look into selling the company or seeking a merger partner while the company is solid financially. In particular, Maglan thinks a merger with Communications Sales & Leasing (CSAL), a wireline REIT that was spun off from Windstream a year ago, is the "most logical combination and would be tremendously accretive to shareholders of both companies."
While looking into a possible sale or merger, FairPoint should take advantage of its current cash-flow and initiate a share repurchase program, Maglan said, adding that a dividend of $1.50 per annum would not exhaust the company's cash-flow based on estimates for 2016.
FairPoint did not immediately respond to a request for comment.
FairPoint is coming off a first quarter that saw broadband grow very incrementally with 193 new subscribers. But the company's total 311,323 broadband subscribers were well down from the 316,640 in the same period a year ago.
In all, FairPoint's total revenue declined $3 million during the first quarter of 2016 to $206.8 million.
- read this Maglan Capital letter
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