Why FairPoint Communications Shares Soared Today

By Evan Niu, CFA Markets Fool.com

Image source: Getty Images.

Continue Reading Below

What happened

Shares of regional telecommunications company FairPoint Communications (NASDAQ: FRP) have soared today, up by 11% as of 11:30 a.m. EST, after Consolidated Communications (NASDAQ: CNSL) announced that it would acquire FairPoint.

So what

The deal is structured as an all-stock transaction valued at $1.5 billion including debt, and both companies' boards have unanimously approved the proposed acquisition. FairPoint investors will receive a fixed exchange ratio of 0.73 shares of Consolidated Communications stock for every share of FairPoint stock that they own. Based on the average exchange ratio over the past month, the offer represents a 17.3% premium. After the deal closes, Consolidated shareholders will own 71% of the new combined company, while FairPoint shareholders will own the remaining 29%.

Now what

Continue Reading Below

Consolidated CEO Bob Udell said the deal would bring together two highly complementary businesses that would offer fiber networks and a wide range of solutions for the business and broadband markets. Consolidated Communications operates in 11 states, while FairPoint operates in 17; the combined company will operate in 24 states. FairPoint CEO Paul Sunu noted that FairPoint shareholders would receive many benefits from the deal, including dividend income and cost synergies. Consolidated plans on refinancing some of FairPoint's existing debt after the deal closes, which is expected by mid-2017.

10 stocks we like better than FairPoint Communications
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and FairPoint Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.