Frontier's depressed valuation and strong position in the fiber broadband sector 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's managing partner Scott Ostfeld said on Tuesday.
A large communications company has partnered with Jana on the idea and is investing alongside the firm, Ostfeld said, declining to name the industry player.
Ostfeld discussed the investment at the 13D Monitor Active-Passive Investor Summit.
Frontier, whose share price had tumbled 29% since January, has been aggressively expanding to more homes and businesses to meet demand for higher speed internet services. But Frontier's debt funded fiber buildout strategy is failing to win over investors in public markets, Ostfeld said, adding that a sale to a strategic buyer or private equity firm is now the best option for shareholders.
The share price closed at $17.97 on Tuesday, having risen nearly 5% after Ostfeld spoke.
A company spokeswoman said Frontier was aware of Jana's presentation and looks "forward to understanding their views." She added that the company speaks regularly to all investors.
"Our Board of Directors and management team are focused on driving long-term value for our shareholders, employees, and customers and continue to take actions that enable us to deliver on this objective," the spokeswoman said.
Despite the stock's poor performance, Wall Street's median analyst price target is $33 or 100% above the current stock price, Ostfeld noted.
Fiber optic internet offers some of the highest speeds for data transmission as well as the lowest operating costs at a time internet connectivity is becoming a critical policy issue around the world as it is shown to support economic growth.
Buying up fiber providers has been a popular investment theme for private equity firms and infrastructure investors around the world. KKR, Apollo Global, Searchlight Capital Partners, Macquarie Infrastructure Partners, EQT, Oak Hill and Ares Capital have all invested aggressively in the space.
Jana's call for Frontier to sell itself comes on the heels of several prominent deals including Consolidated Communications Holdings' planned all-cash sale to Searchlight Capital Partners and British Columbia Investment Management Corp for $3.1 billion. Last year, Apollo Global paid $7.5 billion for assets from Lumen Technologies to create Brightspeed.
Ares Capital is Frontier's largest shareholder, owning a 16% stake and is also an investor in private fiber provider altafiber. In May, Ares updated a regulatory filing and said it plans to seek change or to influence control at Frontier, including through a possible transaction.
Ares has continued to acquire Frontier stock in the public markets as recently as this month, according to a regulatory filing.
Jana has previously pushed for transactions in the telecommunications space, having catalyzed CyrusOne Inc's $15 billion sale to KKR and Global Infrastructure Partners and Vonage Holdings Corp's $6.2 billion sale to Ericsson.
(Reporting by Svea Herbst-Bayliss; Editing by Josie Kao, Robert Birsel)
By Svea Herbst-Bayliss