By Svea Herbst-Bayliss
NEW YORK (Reuters) – Some of Frontier Communications’ (OTC:) largest shareholders are concerned about its planned $9.6 billion takeover by Verizon Communications (NYSE:), whose second-largest investor plans to vote against the deal, three sources familiar with the company’s plans said.
Glendon Capital Management, which owns nearly 10% of Frontier, believes Verizon’s offer of $38.50 per share is too low, the people said. With debt acquired, the deal would be worth $20 billion.
The investor plans to vote against it when the deal comes up for a shareholder vote on November 13, the sources said. A majority of outstanding shares must vote in favor of the deal for it to be approved.
In addition, Cerberus Capital Management, which owns 7.3% of Frontier, has privately expressed its view that Verizon’s purchase price dramatically undervalues Frontier, according to people familiar with the investment firm’s thinking. It was not immediately clear how the investment firm would vote. A spokesperson for Cerberus declined to comment.
Smaller investors also protested the price and privately said they planned to reject the deal next month, several other sources said.
Australian investor Cooper Investors PTY Limited, which owns 800,000 shares, wrote to Frontier’s board on Tuesday, telling the company it would vote against the deal and encourage others to do the same.
The deal significantly undervalues Frontier and fails to adequately compensate shareholders for the expected synergies that would be created by the transaction, co-portfolio managers Geoffrey Di Felice and Marcus Guzzardi wrote in the letter seen by Reuters. They believe that Frontier’s “standalone value is 24-62% above the offering price.”
Verizon and Frontier did not respond to a request for comment. The sources requested anonymity to discuss internal deliberations.
When the deal was announced last month, it represented a 44% premium to Frontier’s 90-day volume-weighted average share price. Verizon CEO Hans Vestberg called the acquisition “a strategic fit” that would allow the company to be more competitive in other markets. Management has said it could take up to 18 months for the deal to close.
Shares of Frontier closed Tuesday at $35.71, $2.79 below the offering price.
Verizon announced the deal nearly a year after activist investment firm Jana Partners said it had built a position in Frontier and called on the third-largest U.S. fiber broadband provider to sell itself.
For Verizon, the acquisition would help it better compete with rivals AT&T (NYSE:) and T-Mobile as they double down on their unlimited plans and bundle options.
The investors’ view comes as some research analysts have also said that Verizon’s price is low and that investors should wait as Frontier’s assets will become more valuable over time.
“We believe investors should decline to vote in favor of the deal unless they receive a higher price,” New Street Research analyst Jonathan Chaplin wrote in a report last week. According to the report, Verizon “could comfortably pay at least $67 and still create value for its shareholders.”
Ares Management (NYSE:), Frontier’s largest investor with a 15.6% stake, declined to comment on its views on the price or how it might cast its vote next month.