FairPoint Communications (Nasdaq: FRP), in its ongoing quest to turn its financial fortunes, will lay off about 400 employees over the next several months.
Management notified employees that about 130 people will lose their jobs in Maine, 190 in New Hampshire and 55 in Vermont in the coming months. Another 25 jobs are being cut in the other 15 states where FairPoint operates.
The job cuts, announced yesterday, will come from both management and FairPoint's union employees represented by the IBEW (International Brotherhood of Electrical Workers) union mainly in its New England region.
Union layoffs include only IBEW members. FairPoint workers represented by the Communications Workers of America (CWA), who work at FairPoint's call centers, have a separate contract and are not affected by the job cuts.
Before making these cuts, FairPoint had to get the pre-approval from the public utility commissions (PUCs) of Maine, New Hampshire and Vermont.
Later this month, FairPoint said it will inform about 100 management employees that they have been let go and will take the necessary steps outlined in their collective bargaining agreement with the two unions that represent the 300 other employees slated to be laid off.
By making these cuts, FairPoint believes it can achieve an "annualized operating expense savings of approximately $34 million, with the full benefit realized in 2012."
David Tawil, co-founder and portfolio manager at Maglan Capital, believes the latest cuts are a key element of FairPoint's turnaround plan.
"Each employee costs the company approximately $100Kand $34 million of savings is clearly meaningful in the context of the company's ~$270 million of 2011E EBITDA," Tawil said in an analyst note. "After taking into account the cost savings from this alone, the company should be able to achieve over $300 million of EBITDA in 2012."
However, Tawil was quick to add that he thinks FairPoint could actually realize cost savings closer to $40 million.
Of course, FairPoint will make severance or incentive payments to eligible affected employees, which will cost the company $7 million to $13 million.
Going forward, Tawil believes that the service provider will continue to focus on building out its broadband network and business and wholesale services, including wireless backhaul in its New England region.
"I think that the company will next turn its attention to seeking strategic alternatives (sale, etc.) for the Telcom Group," he said. "Then, management will be exclusively focused on continuing to turnaround and build the NE business (growth initiatives, further cost reductions) for an eventual sale (to Frontier (NYSE: FTR), Windstream (Nasdaq: WIN) or CenturyLink (NYSE: CTL))."
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