JANA Partners, Ares, and Cerberus – What's going on at Frontier Communications (FYBR)?
Have recently started following activist campaigns and was surprised to see two PE firms (Ares and Cerberus) taking a sizable stake in a public company alongside an activist (JANA Partners). Is this possibly a prelude to taking the company private? From a quick google search, it looks like institutional capital has been interested in Frontier for a while, as Elliott and Oaktree were both major bondholders during the bankruptcy in 2020, and Searchlight also carved out the the company's assets in the PNW.
Very new to this space so any input / discussion is appreciated!
bump!
Been an interesting one for sure. Ares was also a bondholder and built an equity position via the restructuring (which they are adding to slightly as they probably felt the shares were undervalued in the teens)... a good chunk of their position is in their special situations strategy (the balance in their buyout strategy) and I would be surprised if either of them looked at this from a take-private angle (buyouts doesn't have the capital and won't do a minority deal where they are 25%, special sits hasn't really done take-privates).
As far as the other guys go, I'm not sure what their intentions are, it's possible that a consortium could come in and put an offer on the table if they deem the company remains significantly undervalued in public markets and there's more value to be unlocked if the company is private for a few years (although the stock is up 60% from lows this summer and close to the Rx value from early 2021).
I personally wouldn't characterize it as PE firms building big stakes to position themselves for a take-private, it's more funds that were influential in the restructuring holding onto their stakes / adding slightly because they believe the company is undervalued currently and a few of the more opportunistic hedge funds piling in when the shares tanked earlier this year.
Jana will push for a sale of the company because that's what activists do, but I wouldn't bank on that being the outcome of their campaign... it's just the "cleanest" / easiest way to realize value uplift if someone is willing to post a price say 30% above current levels vs. having to bank on the market giving credit for the other value creation strategies Jana outlined (divestitures, JVs, etc.). Just my 2c, curious if others have a different perspective.
Excerpt from Jana's letter to my point above: "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".
Imo it would be silly for frontier to sell themselves today. They are trading at a depressed multiple and would be taking a discount to the value of their plan if they fully fiberized their network which they are well on their way to doing
Short answer is that they got caught on the bad end of the rate trade as Market is discounting capital intensive companies. Frontier is starting to inflect with legacy dsl becoming a smaller share of the business and build costs / input costs going down, feels like the stock may finally wake up and trade at a premium to cable
Depressed multiple? Don’t forget the cash on their balance sheet is already committed to the fiber overlashing. They’re at a premium multiple these days to other fixed line and wireless operators.
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