Filed by Frontier Communications Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Frontier Communications Corporation
Commission File No. 001-11001
Welcome to the New Frontier
May 13, 2009
Frontier Communications
Safe Harbor Statement
3
FORWARD LOOKING STATEMENTS
This presentation contains forward-looking statements that are made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance. Words such as “believe,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties are based on a number of factors, including but not limited to: reductions in the number of our access lines and high-speed internet subscribers; the effects of competition from cable, wireless and other wireline carriers (through voice over internet protocol (VOIP) or otherwise); reductions in switched access revenues as a result of regulation, competition and/or technology substitutions; the effects of greater than anticipated competition requiring new pricing, marketing strategies or new product offerings and the risk that we will not respond on a timely or profitable basis; the effects of changes in both general and local economic conditions on the markets we serve, which can impact demand for our products and services, customer purchasing decisions, collectibility of revenue and required levels of capital expenditures related to new construction of residences and businesses; our ability to effectively manage service quality; our ability to successfully introduce new product offerings, including our ability to offer bundled service packages on terms that are both profitable to us and attractive to our customers; our ability to sell enhanced and data services in order to offset ongoing declines in revenue from local services, switched access services and subsidies; changes in accounting policies or practices adopted voluntarily or as required by generally accepted accounting principles or regulators; the effects of ongoing changes in the regulation of the communications industry as a result of federal and state legislation and regulation, including potential changes in state rate of return limitations on our earnings, access charges and subsidy payments, and regulatory network upgrade and reliability requirements; our ability to effectively manage our operations, operating expenses and capital expenditures, to pay dividends and to reduce or refinance our debt; adverse changes in the credit markets and/or in the ratings given to our debt securities by nationally accredited ratings organizations, which could limit or restrict the availability and/or increase the cost of financing; the effects of bankruptcies and home foreclosures, which could result in increased bad debts; the effects of technological changes and competition on our capital expenditures and product and service offerings, including the lack of assurance that our ongoing network improvements will be sufficient to meet or exceed the capabilities and quality of competing networks; the effects of increased medical, retiree and pension expenses and related funding requirements; changes in income tax rates, tax laws, regulations or rulings, and/or federal or state tax assessments; further declines in the value of our pension plan assets, which could require us to make contributions to the pension plan beginning in 2010, at the earliest; the effects of state regulatory cash management policies on our ability to transfer cash among our subsidiaries and to the parent company; our ability to successfully renegotiate union contracts expiring in 2009 and thereafter; our ability to pay a $1.00 per common share dividend annually, which may be affected by our cash flow from operations, amount of capital expenditures, debt service requirements, cash paid for income taxes (which will increase in 2009) and our liquidity; the effects of significantly increased cash taxes in 2009 and thereafter; the effects of any unfavorable outcome with respect to any of our current or future legal, governmental, or regulatory proceedings, audits or disputes; the possible impact of adverse changes in political or other external factors over which we have no control; and the effects of hurricanes, ice storms or other severe weather. These and other uncertainties related to our business are described in greater detail in our filings with the Securities and Exchange Commission (SEC), including our reports on Forms 10-K and 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement or to make any other forward-looking statements, whether as a result of new information, future events or otherwise unless required to do so by securities laws.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This material is not a substitute for the prospectus/proxy statement Frontier Communications Corporation will file with the SEC. We urge investors to read the prospectus/proxy statement, which will contain important information, including detailed risk factors, when it becomes available. The prospectus/proxy statement and other documents which will be filed by Frontier Communications Corporation with the SEC will be available free of charge at the SEC’s website, www.sec.gov, or by directing a request when such a filing is made to Frontier Communications Corporation, 3 High Ridge Park, Stamford, CT 06905, Attention: Investor Relations.
This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Frontier Communications Corporation and certain of its directors, executive officers and other members of management and employees may, under SEC rules, be deemed to be “participants” in the solicitation of proxies in connection with the proposed transactions. Information about the directors and executive officers of Frontier Communications Corporation is set forth in the proxy statement for Frontier Communications Corporation’s 2009 annual meeting of stockholders.
Management Presenters
4
Maggie Wilderotter is Chairman and CEO of Frontier Communications. She joined
Frontier in November 2004 as President, CEO and a member of the Board of
Directors. Before this, Ms. Wilderotter
was Senior Vice President of Worldwide Public
Sector at Microsoft and prior to that, President and CEO of Wink Communications Inc.
During her career, Ms. Wilderotter has held various executive positions including,
Executive Vice President
of National Operations for AT&T Wireless Services Inc.; Chief
Executive Officer of AT&T's Aviation Communications Division; and Senior Vice
President of McCaw Cellular Communications Inc.
Donald R. Shassian is Executive Vice President and Chief Financial Officer. He joined
Frontier in April 2006 as Chief Financial Officer. Before starting with Frontier, Mr.
Shassian provided consulting
services to various telecommunications companies
including AT&T Inc. and Consolidated Communications Inc. Prior to that, Mr.
Shassian was Senior Vice President and CFO for Southern New England
Telecommunications Corp. (SNET) and responsible
for its successful sale and
integration into SBC Communications (now AT&T). Mr. Shassian was also with Arthur
Andersen for more than 16 years. His last position there was as the Partner-in-
Charge of the Telecommunications Industry
Practice in North America.
Maggie Wilderotter, Chairman & Chief Executive Officer
Donald Shassian, EVP and Chief Financial Officer
Introduction to the New Frontier
Maggie Wilderotter, Chairman & Chief Executive Officer
The “New” Frontier….
TRANSFORMATIONAL TRANSACTION for Frontier
Frontier becomes the largest “pure” rural provider of voice,
broadband and video services with more than 7 million access lines
in 27 states
Delivers substantial long-term shareholder value
Improves balance sheet strength; increases financial
and operational flexibility
Creates a strong platform for continued growth and
improves the company’s overall strategic position
6
The “New” Frontier….
The combination of Frontier and New Communications Holdings Inc.
(“SpinCo”), will create one of the nation’s leading communications
service providers
5th largest ILEC in America, predominantly in rural communities
FY 2008 pro forma access lines of 7.0M and revenue of $6.5B
Compelling transaction for Frontier shareholders
Improves balance sheet strength, FY 2008 pro forma leverage of 2.6x
Attractive and sustainable dividend policy
Free cash flow per share accretive in year 2
Significant opportunity for ongoing value creation
Highly experienced management team
Frontier leadership will run the combined company
Proven ability to integrate acquired properties
Track record in producing best-in-class results
7
Transaction Rationale
8
Rural Profile
SpinCo properties have an average of 37 households per sq. mile
70% of lines in rural areas
Less than 1% of lines in urban areas
Complementary Footprint
Frontier currently has operations in 11 of the 14 states in which SpinCo
operates
Attractive Demographics
Properties have a similar profile to Frontier’s current footprint
Median income of $50.1K, 74% home ownership, average age of 48
Upside for Organic Growth
Ability to implement Frontier’s proven “go-to-market” strategy
Local engagement model will improve customer loyalty and drive revenue
performance
Ability to Leverage Scale
Leverage scalability of common support functions (e.g. IS, Accounting)
Ability to achieve synergies from operating and capital expenditures
Reasonable Capital
Investment
Currently, broadband is only available to ~60% of households
Opportunity to expand broadband deployment
Free Cash Flow Accretive
The transaction drives significant free cash flow per share accretion in year 2
and beyond
Improves Dividend Payout
Ratio
$0.75 per share dividend after closing
Payout ratio declines based on new dividend policy and increased cash flow
Serving Rural America IS our business
Frontier becomes the largest “pure” rural communications provider
9
The “New” Frontier….
What differentiates this transaction from previous RBOC
line purchases?
System Conversion Experience
13 states run on a separate billing platform that comes with SpinCo in
the acquisition; Only one state, representing 13% of SpinCo access
lines, required to be converted by closing
Deleveraging Transaction
This is a deleveraging transaction. FY 2008 pro forma combined
leverage of 2.6x – approaching investment grade
Strong Rural Markets
Substantially the same rural profiles as Frontier has today.
Predominately rural markets (37 households / sq. mile); less than
1% of the footprint is urban
Track Record of Successful
Integrations
Frontier management successfully operates a 2M + access line
business, generating $2.2B of revenue in 24 states. We have
successfully integrated Rochester Telephone, Commonwealth
Telephone and Global
Valley Networks realizing greater than
anticipated synergies, and have consolidated 5 billing systems in the
past 5 years
FY 2008 Key Metrics
Frontier
Standalone
Frontier
Pro Forma
Combined Company Snapshot
10
* New State for Frontier
Frontier Properties
SpinCo Properties
Revenue:
$2.2B
$6.5B
EBITDA (a):
$1.2B
$3.1B
Ending Access Lines:
2.3M
7.0M
Number of States:
24
27
Pro Forma
% of
Footprint
Total
West Virginia
761
10.8%
Indiana
723
10.3%
New York
684
9.7%
Illinois
671
9.5%
Ohio
635
9.0%
Washington*
579
8.2%
Michigan
526
7.5%
Pennsylvania
427
6.1%
Wisconsin
343
4.9%
Oregon
323
4.6%
North Carolina*
263
3.7%
Minnesota
211
3.0%
California
168
2.4%
Arizona
152
2.2%
Idaho
133
1.9%
South Carolina*
128
1.8%
Tennessee
79
1.1%
Nevada
60
0.8%
Iowa
45
0.6%
Nebraska
43
0.6%
Alabama
26
0.4%
Utah
22
0.3%
Georgia
19
0.3%
New Mexico
8
0.1%
Montana
8
0.1%
Mississippi
5
0.1%
Florida
4
0.1%
Total
7,045
Pro Forma Access Lines By State
(a) Excludes synergies
Industry Leading Profile
11
Source: Company filings and Wall Street research – 2008 data.
(a) Reflects Embarq excluding Logistics and Qwest Wireline only.
2008 Revenue ($B) (a)
2008 EBITDA ($B) (a)
Total Access Lines (M)
Voice + Broadband Connections (M)
$2.2
$3.2
$6.5
$8.3
$13.0
$0
$5
$10
$15
$20
Frontier
WIN
Frontier
Pro
Forma
CTL + EQ
Q
2.3
3.0
7.0
7.7
11.6
0
5
10
15
Frontier
WIN
Frontier
Pro
Forma
CTL + EQ
Q
2.8
4.0
8.6
9.7
14.4
0
5
10
15
20
Frontier
WIN
Frontier
Pro
Forma
CTL + EQ
Q
$1.2
$1.6
$3.1
$3.9
$6.9
$0
$2
$4
$6
$8
Frontier
WIN
Frontier
Pro
Forma
CTL + EQ
Q
Operating Strategy
12
Leverage Frontier’s performance culture
Sales and service focus to drive best in class results
Local engagement model
Local ownership of market performance
Community involvement for competitive advantage
Drive customer acquisition and retention
Deliver a differentiated customer experience
Investment in network infrastructure
Expansion of broadband reach and speed
Support for new product and service offerings for customer
revenue growth
Product quality and reliability
Margin expansion as economies of scale are realized
Scalability of people, systems, processes and functions
Operating Strategy
13
Frontier’s 3 P framework provides the building blocks
for successful integration planning and execution
Migration to Frontier brand
Simplify/Improve the Customer
Experience
Unique marketing campaigns and
incentives to drive market share
and wallet share
Expanded distribution channels
Innovative products and service
differentiators
Pay for performance culture
Goals and incentives aligned to
business objectives
Hire and retain “athletes”
Exceed Financial Targets by:
Network investments to expand
HSI availability and drive revenue
opportunity
Focus on “owning” small and
medium size businesses
Achieve economies of scale
through consolidation and
standardization of systems and
functions
Grow customer revenue and keep
existing customers
People
Product
Profit
Transaction Overview & Financial Highlights
Donald R. Shassian, EVP & Chief Financial Officer
Transaction Overview
15
Transaction Structure
Reverse Morris Trust
Simultaneous tax-free spin-off of SpinCo and merger with Frontier
Valuation
SpinCo Enterprise Value: $8.6B
Implied purchase multiple of 4.5x SpinCo’s FY 2008 EBITDA
Financing
Equity consideration based on Frontier’s 30 day average share price at
time of close
Subject to a collar of $7.00 – $8.50, 66% - 71% VZ stockholder ownership
Fixed number of shares outside the collar
$3,208M of debt to be raised prior to closing
Proceeds to be paid to Verizon
Governance
Maggie Wilderotter, Chairman & Chief Executive Officer
Frontier management leadership
12 member board (Verizon elects 3 new members to Frontier existing board)
Post Closing Dividend Policy
Annual dividend of $0.75 per share
Estimated Synergies
Revenue upside from broadband, long distance, video and bundles
$500M of cash OpEx savings (21% of 2008 SpinCo cash OpEx)
Required Approvals
Hart Scott Rodino
Frontier shareholder approval
Verizon IRS ruling
FCC and certain state and local regulatory approvals
Expected Closing
Approximately 12 months
Transaction Summary
16
Verizon
Stockholders
Frontier
Stockholders
Verizon
Frontier
(FTR + 4.8M
SpinCo Lines)
32%
$3,333M
SpinCo pays Verizon
$3,333M in cash or
debt relief
Verizon distributes
100% of SpinCo to
Verizon shareholders
SpinCo merges with
Frontier; Frontier is
the surviving entity
Parameter
Frontier (a)
SpinCo
Total
Price/Share
$ 7.75
$ 7.75
$ 7.75
Shares Outstanding
312
677
989
Equity Value
$ 2,421
$ 5,247
$ 7,668
Net Debt
4,547
3,333
8,005 (b)
Firm Value
$ 6,968
$ 8,580
$ 15,673
2008 EBITDA (c)
$ 1,214
$ 1,918
$ 3,132
FV/'08 EBITDA
5.7x
4.5x
5.0x
Net Debt/'08 EBITDA
3.8x
1.7x
2.6x
Share price collar of
$7.00 – $8.50 per
share; 617 – 750M
shares (66-71%)
Verizon stockholder
ownership
(a)
As of 3/31/09
(b)
Includes $125 million of financing for integration costs
(c)
FY 2008 Pro forma EBITDA, excludes synergies
Key Financial Characteristics
17
2.6x
$1.44
$1,423
9
(701)
(364)
(653)
48.0%
3,132
$6,524
Sub-Total
2008 Statistics
Frontier
SpinCo (b)
Synergies
Total
Revenue
$2,237
$4,287
---
$6,524
EBITDA
1,214
1,918
$500
3,632
% EBITDA Margin
54.3%
44.7%
55.7%
Bridge to Free Cash Flow:
Interest Expense
(363)
(290)
0
(653)
Cash Taxes
(79)
(285)
(190)
(554)
Capital Expenditures
(288)
(413)
0
(701)
Other
9
0
0
9
Free Cash Flow
$493
$930
$310
$1,733
FCF/Share
$1.58
$1.37
N/A
$1.75 (c)
Net Debt / EBITDA
3.8x
1.7x
2.2x
Dividends ($0.75 / share)
---
---
---
$742 (c)
Dividend Payout Ratio
---
---
---
43% (c)
(a)
Adjusted to exclude Severance and Early Retirement Costs and Legal Settlement Costs.
(b)
2008 audited financial statements adjusted for certain matters
(c)
Assuming Frontier issues share at the mid-point of the collar
(a)
Ongoing Value Creation
18
Our ability to migrate the acquired properties to Frontier’s
performance metrics offers the potential for significant value
creation
Access Line Decline
Long Distances Penetration
HSI Penetration
Satellite TV Penetration
Note: Data is as of 12/31/08.
Substantial Revenue & Cost Saving Opportunities
19
Revenue
Opportunity
Increased Broadband availability
Frontier market approach improves critical
customer metrics
Access line losses
HSI penetration
Long distance penetration
Video penetration
Synergies
Executive Management
Legal
Information Systems
Finance & Accounting
Increased purchasing power with vendors
~ $500M
Annually
Non-Recurring
Integration Costs
Branding
IT Development
Severance
CapEx ~ $126M
OpEx ~ $66M
Integration
Proven track record of successfully integrating acquired
properties
Achieved 150% of synergy target for the 2007 Commonwealth
acquisition
Frontier has successfully completed financial, business and
operational support system conversions over the past 10 years
Proven track record in converting billing systems
Consolidated 5 billing systems into one over the past five years,
converting 1.7M access lines
Current billing system is scalable to absorb this acquisition
20
Integration
Framework for successful RBOC line integration
Frontier has the scale, scope and experience to absorb these operations
Ensure that all key business processes work effectively at closing
Integration onto our current billing platform can be accomplished
over time
Key Structure Benefit:
13 states (former GTE operations) will operate on existing systems as a
stand-alone entity at closing
Only 1 state will need to convert to the Frontier platform at closing
Integration planning will commence immediately
21
Summary Financial Comparison
22
Access Lines
2,250K
7,050K
Revenue
$2,250M
$6,525M
EBITDA (a)
$1,200M
$3,125M
CAPEX
$290M
$700M
Net Debt
$4,547M
$8,005M
Dividend / Share
$1.00
$0.75
Shares Outstanding
312M
989M
Net Leverage
3.8x
2.6x
Payout Ratio
64.6%
43.0%
Note: Data pro forma for the year ended December 31, 2008, except as noted.
(a) FY 2008 EBITDA, before synergies
(b) As of 3/31/09
(c) Subject to collar adjustment.
(b)
Frontier Standalone
Frontier Pro Forma
2008 Statistics
(c)
Closing Conditions
Required Approvals
Frontier shareholder approval
Hart Scott Rodino
FCC approval
Certain state and local regulatory approvals
Verizon IRS revenue ruling
Financing
$3.2B by closing
23
Summary
Maggie Wilderotter, Chairman & Chief Executive Officer
The “New” Frontier….
TRANSFORMATIONAL TRANSACTION for Frontier
Frontier becomes the largest “pure” rural provider of voice,
broadband and video services with more than 7 million access lines
in 27 states
Delivers substantial long-term shareholder value
Improves balance sheet strength; increases financial
and operational flexibility
Creates a strong platform for continued growth and
improves the company’s overall strategic position
25
Appendix
Transformational, The New Frontier…..
Delivers substantial long-term shareholder value
Opportunity to grow customer revenue
$500 million of cash operating expense synergies
Accretive in year 2
27
Improves balance sheet strength; increases financial/operational flexibility
Strong Capital Structure, FY 2008 Pro Forma Leverage of 2.6x
Dividend sustainability
Significant cash flow generation
Creates a strong platform for continued consolidation and improves the
company’s overall strategic position
Scalable people, processes, systems
Acquisition integration competencies
Track record for growth
Solid industry experience and relationships
Access Line Detail
28
As of 12/31/08
Frontier
SpinCo
Combined
West Virginia
143,982
617,036
761,018
Indiana
4,647
718,251
722,898
Illinois
97,461
573,321
670,782
Ohio
552
634,153
634,705
Michigan
19,102
507,462
526,564
Wisconsin
62,007
281,350
343,357
Oregon
12,626
309,904
322,530
California
143,871
24,205
168,076
Arizona
145,241
6,297
151,538
Idaho
20,035
113,002
133,037
Nevada
23,701
35,989
59,690
673,225
3,820,970
4,494,195
Washington
-
578,506
578,506
North Carolina
-
263,479
263,479
South Carolina
-
127,718
127,718
-
969,703
969,703
New York
683,880
-
683,880
Pennsylvania
427,489
-
427,489
Minnesota
210,983
-
210,983
Tennessee
79,014
-
79,014
Iowa
44,891
-
44,891
Nebraska
43,106
-
43,106
Alabama
25,980
-
25,980
Utah
21,718
-
21,718
Georgia
19,167
-
19,167
New Mexico
8,001
-
8,001
Montana
7,659
-
7,659
Mississippi
5,474
-
5,474
Florida
3,746
-
3,746
1,581,108
-
1,581,108
2,254,333
4,790,673
7,045,006