Frontier to buy rural Verizon lines for $5.3B

Frontier will acquire Verizon's wireline business in 14 states, increasing the number of access lines in its portfolio to 7 million.

Frontier expects to save about $500 million in costs annually from the deal, by leveraging its existing networks and infrastructure.

The deal continues Verizon's strategy of focusing on its core areas, where it is upgrading its phone lines to fiber optics, enabling it offer TV service and faster Internet access. It sold off its phone lines in Maine, New Hampshire and Vermont for $2.3 billion last year to Fairpoint Communications Inc.

The agreement would give Frontier 4.8 million phone lines to residential and small business customers and 1 million broadband connections. Frontier currently has 2.3 million customers.

Verizon shareholders will own between 66 percent and 71 percent of the new company after the deal closes, while Frontier shareholders will own between 29 percent and 34 percent. The deal is expected to close within 12 months.

Analyst Christopher King at Stifel Nicolaus noted that buyers of Verizon phone lines have fared badly in the past — Fairpoint is struggling with its debt load, and the buyer of Verizon's Hawaiian business is in bankruptcy. But Frontier will actually reduce its debt load relative to its earnings through the transaction, King said.

Citigroup Inc and Evercore Partners acted as financial advisers to Frontier. Barclays Cap and JPMorgan Securities advised Verizon.