JANA Partners Sends Letter to Frontier Communications' Board
- None.
- Frontier's equity is grossly undervalued and is expected to continue underperforming if the Board maintains the status quo.
- Frontier has failed to attract new fundamental investors more than two years after its reorganization.
- Frontier's stock price has declined by more than 50% in the two-year period through the middle of September before JANA's involvement.
- The company's inability to attract new investor interest despite achieving key execution milestones and favorable features in Barron's is alarming.
Believes Significant Structural Impediments Prevent Frontier from Achieving Full Potential
as a Public Company
Calls For Frontier Board to Immediately Launch Comprehensive Review of Strategic Alternatives
The full text of the letter follows:
December 4, 2023
Board of Directors
Frontier Communications Parent, Inc.
1919 McKinney Avenue
Board of Directors,
JANA Partners ("we" or "us") is writing to follow-up on our dialog with Frontier Communications ("Frontier" or the "Company") regarding timely actions the Company's Board of Directors (the "Board") should take to reverse Frontier's poor share price performance and unlock value for shareholders.
As we have expressed publicly and in direct conversations with the Company, we believe Frontier's equity is grossly undervalued and that it will continue to underperform if the Board maintains the status quo. Accordingly, we are calling on the Board to immediately commence a comprehensive review of strategic avenues for shareholder value creation, including evaluating a sale transaction, a strategic partnership/joint venture, and/or the divestiture of non-core copper passings to accelerate Frontier's transition to a pure-play fiber provider. In our view, delaying implementation of corrective actions until next year after the planned investor update reflects a lack of urgency shareholders can ill afford.
Importantly, we wish for the Board to pursue whatever option generates the greatest risk-adjusted return for shareholders. Based on our discussions with potential strategic and financial buyers who have indicated interest in participating in a Company-initiated review process, we believe that a bona fide evaluation of strategic alternatives would lead the Board to conclude that a sale transaction offers the best risk-adjusted outcome for shareholders. However, this can only be determined by conducting such a review.
A Board-led review of alternatives is certainly preferable to an unnecessarily distracting campaign to force this warranted action. As such, we would be highly supportive of the Board should it commit to this review.
Frontier Has Failed Its Shareholders as a Public Company
We believe Frontier's failed tenure in the public markets stems in part from its inability to attract new investor interest. Despite exiting bankruptcy more than two years ago, Frontier continues to be held largely by the same credit funds it emerged with post restructuring. In fact, since the beginning of 2022, Frontier has managed to attract only two new top 20 shareholders other than JANA Partners.
Frontier's failure to attract new fundamental investors more than two years after its reorganization is even more alarming given many dynamics that would typically garner significant investor interest and attention, including:
- A more than
50% decline in Frontier's stock price in the two-year period through the middle of September, right before JANA's purchases began impacting the stock price; - A median analyst price target ~
100% above the stock price prior to the disclosure of our involvement;1 - Two favorable recent features in Barron's: Frontier Stock Has an Activist Investor. It's a Positive Catalyst. (10/20/23) & Buy Frontier Communications Stock. High-Speed Internet Will Boost Shares. (7/18/23);
- Achieving key execution milestones towards Frontier's goal of 10 million fiber locations, progressing significantly towards the Company's long-term penetration target for its base fiber footprint, and sustainably growing customer ARPU across its footprint;
- Continued substantial private equity investment activity in the sector, including by leading firms such as Apollo, Ares, EQT, KKR, Madison Dearborn, Searchlight,
Oak Hill and Macquarie; - Ares, a private equity firm and Frontier's largest shareholder, taking the highly unusual step of filing a 13D with the SEC in May, and then continuing to purchase shares in the open market;
- Large strategics publicly highlighting the value of fiber-to-the-home in a converged offering;2 and
- Executing an innovative ABS financing of select fiber passings this past summer at a valuation that would imply substantial equity upside to Frontier.
Substantiating our concerns about the Company's inability to create value in the public market, Frontier has also significantly underperformed its stated peers and the S&P 500.
Total Shareholder Returns3 | |||||
1-Year | 2-Year | Since Listing | |||
Frontier | (43.9 %) | (55.5 %) | (46.0 %) | ||
Proxy Peer Median | 1.2 % | (10.0 %) | (16.2 %) | ||
Frontier Rank | 13 / 16 | 13 / 16 | 12 / 16 | ||
S&P 500 | 10.4 % | 3.3 % | 11.2 % | ||
Frontier's ability to reverse its decline in the public market by attracting new investors faces multiple structural impediments. These impediments include:
- A highly complex and leveraged balance sheet that only a credit investor could love (and understand) that is unlikely to improve in the medium-term;
- A debt funded, capital intensive growth strategy coming at the expense of free cash flow, which analysts do not expect to turn positive until 2027;[4]
- Frontier's past being marred by poor performance and the bankruptcy filing itself, biasing portfolio managers and sector research analysts against reinvesting in the Company;
- The ongoing complexity and business risk stemming from the transition from copper to fiber; and
- An uncertain FCC regulatory environment.
Frontier's inability to drive value as a listed entity has been compounded by a dramatically different interest rate outlook, elevated cost inflation, and a weakening macroeconomic backdrop since the Company re-entered the public markets in 2021. These simple facts require the Board to recalibrate any preconceived valuation expectations derived in years past.
While it should be self-evident that the status quo has fallen short by failing to deliver value for existing shareholders and not attracting new ones, Frontier nevertheless continues to express publicly its supreme confidence in its strategy and execution. Even more perplexing than the Company's expectation of a different result from the same strategy is the fact that, despite their professed confidence, neither the Board nor management has made a single open market purchase of Frontier stock in nearly two years – while Frontier's shares declined by more than
As you know, JANA Partners seeks to work collaboratively with companies in which it invests, and our objectives are fully aligned with those of all shareholders. We bring a 22-year track-record of successfully unlocking shareholder value in public companies and hope to realize a similarly successful outcome for Frontier's shareholders.
We look forward to the Board's prompt response.
Sincerely,
Barry Rosenstein | Scott Ostfeld |
About JANA Partners
JANA Partners was founded in 2001 by Barry Rosenstein. JANA invests in undervalued public companies and engages with management teams and boards to unlock value for shareholders.
Disclaimer
Except as otherwise set forth herein, the views expressed herein reflect the opinions of JANA Partners Management, LP and its affiliates ("JANA") and are based on publicly available information with respect to Frontier Communications Parent, Inc. (the "Company"). JANA recognizes that there may be information in the possession of the Company that could lead it or others to disagree with JANA's conclusions. JANA reserves the right to change any of its opinions expressed herein at any time as it deems appropriate and disclaims any obligation to notify the market or any other party of any such change, except as required by law. For the avoidance of doubt, this press release is not affiliated with or endorsed by the Company.
This press release and the discussions and opinions herein are for general information only, and are not intended to be, nor should they be construed as, an offer to sell or a solicitation of an offer to buy any security, a recommendation to purchase or sell any security, or legal, financial, tax, investment, or other advice. Funds managed by JANA currently beneficially own shares of the Company. These funds are in the business of trading (i.e., buying and selling) securities and intend to continue trading in the securities of the Company. You should assume such funds may from time to time sell all or a portion of their holdings of the Company in open market transactions or otherwise, buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to such shares, subject to applicable law. Consequently, JANA's beneficial ownership of shares of, and/or economic interest in, the Company may vary over time depending on various factors, with or without regard to JANA's views of the Company's business, prospects, or valuation (including the market price of the Company's shares), including without limitation, other investment opportunities available to JANA, concentration of positions in the portfolios managed by JANA, conditions in the securities markets and general economic and industry conditions.
This press release contains forward-looking statements. Forward-looking statements are statements that are not historical facts and may include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates", "plans", "will be" and similar expressions. These forward-looking statements include, without limitation, statements regarding JANA's engagement with the Company. Although JANA believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties—many of which are difficult to predict and are generally beyond the control of JANA or the Company—that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. There can be no assurance or guarantee that any of the proposed actions set forth herein will be completed. In addition, the foregoing considerations and any other publicly stated risks and uncertainties should be read in conjunction with the risks and cautionary statements discussed or identified in the Company's public filings with the United States Securities and Exchange Commission (the "SEC"), including those listed under "Risk Factors" in the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements speak only as of the date hereof and, other than as required by applicable law, JANA does not undertake any obligation to update or revise any forward-looking information or statements. Certain information included in this material is based on data obtained from sources considered to be reliable. Any analyses or assumptions provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses or assumptions should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and, unless required by law, are subject to revision without notice.
1 Per Bloomberg data as of October 16, 2023.
2 E.g., "Where we build fiber, we win." AT&T Q3 2023 Earnings Call.
3 As of September 12, 2023, the day before JANA began impacting the stock price through acquisition of Frontier shares.
4 Per Goldman Sachs equity research model dated November 1, 2023.
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SOURCE JANA Partners
FAQ
What is JANA Partners urging Frontier Communications Parent, Inc. (FYBR) to do?
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