Fairpoint Acquires Verizon Phone Lines
Fairpoint Communications, Inc, a telephone service provider based in North Carolina, has acquired Verizon’s landline telephone operations as well as its Internet business in New England.
Following the purchase, Fairpoint’s stock suffered a ten percent drop when the stock market opened. By the end of the day, stocks were being traded down at 12 percent. Verizon shares, on the other hand, gained a two percent increase.
The deal, which was valued at $2.3 billion, includes the acquisition of around 1.6 million telephone lines and 230,000 Internet customers in the Maine, New Hampshire and Vermont areas. Under the agreement, Verizon will own 60 percent of the company, leaving Fairpoint shareholders with 40 percent.
The company will also take on the Fairpoint brand name. Verizon Communications, Inc. announced over a year ago its plans to sell its landline operations to Fairpoint. The deal was originally priced at $2.7 billion.
Despite the dismal performance of company shares, Fairpoint Communications, Inc. CEO Gene Johnson appeared pleased with the deal, which makes his company one of the largest telephone service carriers in the United States. Some analysts however, say the purchase is a huge risk for Fairpoint seeing that the company has acquired a huge amount of debt to seal the deal.
There are also concerns about Fairpoint’s ability to generate revenues as utility companies rarely get a ten percent return on investments. Other observers are optimistic about Fairpoint’s chances, with some even forecasting a 55 percent return on investment.
There were rumors that Fairpoint’s interest rates had increased and as a result, the deal was being closely observed by regulators. The hearing in Maine were scheduled Thursday while the New Hampshire and Vermont hearings were schedule just the day before the negotiations came to a close.
Although the three states approved the deal, New Hampshire imposed certain conditions on Verizon. One is that Verizon is to help set off expenses - amounting to around $17 million a year for a period of five years - brought about by the increase in interest rates.
Verizon said it will pay Fairpoint $15 million dollars after a year’s ownership of the phone lines, plus an additional $15 million on the second year should Fairpoint be unsuccessful in satisfying certain standards.
Aside from telephone services such as local and long-distance calls, Fairpoint Communications, Inc. also offers Internet, cable TV, data and broadband services. Verizon, which is based in New York, provides wireless communications services.