Frontier: An Acquisition Target?

Shares of Frontier Communications (NASDAQ: FTR) have spiraled down for the most part of the past year; its stock prices are down by 70% over the past 6 months alone. This drastic downtrend has sparked speculative discussions on a few investing boards over a potential acquisition of the telecom firm. The general premise of this argument is that Frontier’s stock has crashed so much that well-funded telecom companies could acquire their smaller rival at a deeply discounted price and unlock synergies of merged operations from there. While that may portray an optimistic outcome for existing Frontier shareholders, I’m of the opinion that the likelihood of this acquisition is very low and may not come to fruition anytime soon. Let’s take a closer look.

Valuation Game

This aspect happens to be the basis of most M&A related speculative discussions surrounding Frontier. Its market capitalization has depreciated by 80% in value over the past year alone, but that doesn’t single-handedly make it a lucrative acquisition target. We must remember that Frontier is holding a ton of debt and has an eroding subscriber base that the acquirer would have to assume in the event of a buyout.

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