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
NEW
YORK, Dec. 4, 2023 /PRNewswire/ -- JANA
Partners ("JANA"), a shareholder of Frontier Communications Parent,
Inc. (NASDAQ: FYBR) ("Frontier" or the "Company"), today sent a
letter to Frontier's Board of Directors (the "Board") reiterating
the urgent need for the Board to immediately engage in a
comprehensive review of strategic alternatives to maximize value
for shareholders.
The full text of the letter follows:
December 4, 2023
Board of Directors
Frontier Communications Parent, Inc.
1919 McKinney Avenue
Dallas, TX 75201
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 %)
|
|
|
|
|
|
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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 50%.
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
Managing Partner & Co-Portfolio Manager
JANA Partners
|
Scott Ostfeld
Managing Partner & Co-Portfolio Manager
JANA Partners
|
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