Might T-Mobile Buy Frontier Communications?

Analysts are speculating that T-Mobile has partnered with Jana Partners to build a stake in Frontier Communications, and are calling on the company to sell itself.

According to Reuters, activist investment firm Jana Partners has built a new position in Frontier Communications, the third-largest U.S. fiber broadband provider. In addition, a “large communications company” has partnered with Jana Partners on the effort.

Frontier’s depressed valuation and strong position in fiber broadband would make it an attractive asset for wireless carriers and private equity-owned assets in the sector, as well as for infrastructure and private equity funds, Jana Partners’ managing partner Scott Ostfeld told Reuters.

We couldn’t reach Jana Partners or T-Mobile for confirmation.

T-Mobile ‘Logical’ Partner in Frontier Communications Investment

According to Channel Futures’ sister site, Light Reading, financial analysts at Wells Fargo believe that the unnamed company is likely T-Mobile.

“T-Mobile is the most logical communications company partner, in our view,” the analysts wrote in a note to investors. “We note that T-Mobile has an accelerating [free cash flow] story, a solid balance sheet, and has been looking at [fiber to the home] over the past year via small pilot projects.”

The Wells Fargo analysts said other large communications companies may be unable to back Jana Partners.

“AT&T and Verizon are committed to deleveraging over the next couple years, and the cable companies would likely have conflicts with overlapping geographies,” they said.

However, Wells Fargo analysts said DigitalBridge, a global digital infrastructure investment firm, might be another potential Jana Partners backer.

Financial analysts at New Street Research said Jana Partners’ investment in Frontier highlights the company’s value.

“We are delighted that Jana sees what we see in Frontier – an egregiously undervalued asset that will eventually be folded into a national wireless carrier at twice the multiple and twice the [earnings before interest, taxes, depreciation and amortization] that they have today,” they wrote in a note to investors.

However, the New Street Analysts said now is not a good time for Frontier Communications to sell. That’s in part because the broadband market overall is in a trough and because they believe Frontier could generate higher purchase prices later.