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Scaling the Network: Consolidated Communications To Buy FairPoint Communications for $1.5B

Consolidated Communications, No. 44 on the 2016 CRN Solution Provider 500, says the deal will create a network that extends across 24 states and add more than 3,000 lit buildings.

Consolidated Communications plans to purchase FairPoint Communications for $1.5 billion to deepen its fiber footprint in northern New England.

The Mattoon, Ill.-based company, No. 44 on the 2016 CRN Solution Provider 500, said its proposed acquisition of the $830 million, Charlotte, N.C.-based company will create a network that extends across 24 states and add more than 3,000 lit buildings. The deal is subject to federal and state regulatory approvals, and it expected to close by mid-2017.

"This transaction combines two companies with extensive fiber networks and complementary strategies focusing on being the leading business and broadband solutions provider," Bob Udell, Consolidated Communications' president and CEO, said in a statement. "This merger positions Consolidated to leverage its extensive product and services portfolio … bringing advanced solutions and a better experience to customers."

[RELATED: Verizon Spins Off Northern New England Operations In $2.72B Deal]

The deal will double Consolidated Communications' revenue to $1.5 billion, as well as doubling its adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) after synergies to $621 million. The deal is expected to generate $55 million of operating synergies, which are expected to be achieved within two years of the merger's close.

FairPoint employs 2,600 and owns more than 17,000 route miles of fiber in northern New England. The company said it supports next-generation mobile and cloud-based communications such as small cell wireless backhaul technology, voice over IP, data center co-location services, managed services and disaster recovery.

"Together, FairPoint and Consolidated Communications create a highly competitive business and broadband company with a superior network to deliver a best-in-class experience to carrier, commercial and consumer customers," Paul Sunu, FairPoint's CEO, said in a statement.

Udell will lead the combined company, and one director from FairPoint's board will join the Consolidated Communications board of directors. Consolidated Communications and FairPoint executives were not immediately available for additional comment.

Under the terms of the deal, FairPoint shareholders will receive 0.73 shares of Consolidated Communications stock for every share of FairPoint held. As a result, Consolidated Communications' shareholders will own 71.3 percent of the combined company, with FairPoint's shareholders owning the remaining 28.7 percent.

The acquisition will provide an opportunity to leverage Consolidated Communications' enhanced product suite and consultative sales approach across FairPoint's markets, the company said. FairPoint has invested more than $1 billion in its infrastructure and technology since 2009, according to the company, and is now able to provide greater than 90 percent broadband coverage.

FairPoint has 32 markets with access to Ethernet connections capable of data transport speeds of up to 1 GB. The company derives 80 percent of its revenue from northern New England – Maine, New Hampshire and Vermont – and 20 percent of its revenue from 16 other states spaced pretty evenly across the country.

The deal will reduce Consolidated' Communications' dependence on business and broadband, with its share of overall revenue dropping by 83 percent to 72 percent. At the same time, the share of its business focused in residential voice and more will grow from 10 percent to 22 percent.

Some $45 million of the synergies are expected to come from operating cost reductions related to corporate, IT support and network and operational efficiencies. The remaining 10 percent of the synergies are projected to come from vendor and outsourced costs related to professional services, back-office systems and operating as a public company.

The deal will boost Consolidated Communications' fiber network miles by 250 percent to 35,100, its on-net buildings by 150 percent to 8,500, and its fiber-connected towers by 220 percent to 2,400. Consolidated Communications currently operates in 11 states in the Upper Midwest and Great Plains, providing data, voice, video, managed services, cloud computing and wireless backhaul services.

Consolidated Communications has a history of successfully integrating acquisitions and beating synergy targets, pointing to its 2004 purchase of TXU, 2007 purchase of North Pittsburgh, 2012 purchase of SureWest and 2014 purchase of Enventis. Consolidated Communications achieved synergies of $10 million to $16 million in the North Pittsburgh deal, $30 million to $35 million in the SureWest deal and $14 million in the Enventis deal.

Consolidated Communications' net sales in the quarter ended Sept. 30 fell 1.2 percent to $191.5 million, while its net income soared by 270.2 percent to $7 million. Meanwhile, FairPoint's revenue in the quarter ended Sept. 30 fell by 6.5 percent to $207.1 million and its net income dropped by 24.2 percent to $40.2 million.

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