Consolidated Communications Holdings Inc. said on Monday it would buy broadband service provider FairPoint Communications Inc. in an all-stock deal valued at $1.5 billion, including debt.
Consolidated’s acquisition of FairPoint marks the fifth such deal in the last two months as growing demand for data and video services drives companies to expand their fiber-optic networks in newer regions.
The deal will help Consolidated expand into northern New England, adding about 17,000 fiber route miles in the region. FairPoint provides internet and phone service and backhaul data services on its fiber-optic cable network in Maine.
Shareholders of FairPoint will receive 0.73 shares of Consolidated for each share held.
Excluding debt, the equity portion of the deal is valued at about $561 million, or $20.72 per FairPoint share, according to Reuters calculations. This represents a premium of 21.9 percent to FairPoint’s Friday close.
FairPoint’s shares were up 11.9 percent at $19 in morning trading and touched a 1½ year high of $19.50, and Consolidated’s shares were down 4.19 percent at $27.19.
FairPoint investor hedge fund Maglan Capital earlier this year pressured the company to sell itself.
Maglan took equity in the company by converting its debt as part of a loan-to-own strategy stemming from FairPoint’s 2009 bankruptcy.
“They do need to be part of a larger enterprise to … get the best value for the business and shareholders,” Maglan President David Tawil said.
Consolidated will assume FairPoint’s long-term debt of about $900 million as of Sept. 30 and own about 71.3 percent of the combined company on a pro forma basis.
FairPoint and Consolidated together generated pro forma annual revenue of more than $1.5 billion as of Sept. 30.
The transaction, which is expected to close by mid-2017, is expected to add “meaningfully” to Consolidated’s cash flow per share in the first year after the completion of the deal.
“This is the time where [if] you are thinking about an acquisition, you want to get it done now because … from a financing perspective, the markets may not be favorable six months from now,” Drexel Hamilton analyst Barry Sine said, explaining that interest rates may rise soon.
Among the latest deals in the sector, CenturyLink Inc. agreed to buy Level 3 Communications Inc. in a $24 billion deal in October.
Telecom infrastructure provider Zayo Group Holdings Inc. agreed to buy Electric Lightwave for $1.42 billion in cash in November.
Morgan Stanley & Co LLC was the lead financial adviser to Consolidated, and Evercore was FairPoint’s sole adviser.
Schiff Hardin LLP was legal adviser to Consolidated, and Paul Hastings was FairPoint’s legal counsel.