Frontier Communications falls amid downgrade as higher bid seen unlikely

Frontier Communications (NASDAQ:FYBR) edged lower by 0.6% as the telecom firm was downgraded to market perform from strong buy at Raymond James as it’s unlikely to see a higher bid even as some shareholders oppose its sale to Verizon (VZ).

“We believe the shareholder vote can get through, and while slightly higher valuations could be justified, we do not expect them to emerge,” Raymond James analyst Frank Louthan wrote in a note on Sunday. “We would also expect downside from current levels if the vote does not go through.”

The downgrade and commentary come as some large Frontier (FYBR) holders have expressed their belief that the Verizon deal undervalues the company. Glendon Capital last week said it plans to vote against the deal if the investor doesn’t see a better price and if the special meeting date isn’t changed. Last Monday, Frontier (FYBR) holder Carronade Capital Management, said it plans to vote against the deal and believes that FYBR has an intrinsic value of at least $48.60 per share.

Raymond James’ Louthan said calls for higher bids are ignoring two “realities” on how long it will take to realize higher value as a standalone and the complexities of a legacy copper ILEC.

“Anyone can reverse engineer a valuation case, but the investor’s thesis all display a lack of familiarity with the industry, and simply ignore the realities of a legacy copper telco which significantly impair a straightforward path to value creation,” Louthan added.

Last Wednesday Bloomberg reported that Frontier Communications’ (FYBR) largest shareholder, Ares Management, hired an adviser as it evaluates the company’s $10 billion planned sale to Verizon (VZ).

The deal is currently set for a Frontier (FYBR) shareholder vote on Nov. 13.