FairPoint Communications Inc. completed its purchase of Verizon's wired telephone lines and high-speed Internet service in northern New England on Monday, and was promptly taken to the woodshed by investors.
FairPoint's stock dropped 10 percent at the opening bell, and dropped further in midday trading on the New York Stock Exchange. Goldman Sachs analyst Jason Armstrong added FairPoint to his sell list and said the multibillion-dollar deal will push risk "materially higher."
Wall Street's reaction came as FairPoint CEO Gene Johnson touted the deal's closing in New York as creating the nation's eighth-largest telephone company and vowed to put customers first.
The $2.3 billion deal transfers about 1.6 million telephone lines and 230,000 high-speed Internet customers in Maine, New Hampshire and Vermont from Verizon Communications to North Carolina-based FairPoint.
The transaction was completed Monday morning after being in the works for more than a year.
The closing took place after the deal survived last-minute scrutiny over late word that FairPoint's interest rates on bonds supporting the deal had grown.
The 11th-hour drama actually unfolded in the
middle of last week when FairPoint discovered it couldn't sell all of $540 million in bonds needed to support the deal despite increasing the rate from 8 percent to 11.5 percent interest rate. It ended up having to increase the interest rate to 13.5 percent.
Maine regulators learned of the change on Thursday, and scheduled a hearing on Friday. Vermont and New Hampshire held their hearings on Sunday, the day before the deal closed.
The takeaway message for FairPoint Communications: Utility regulators in the three states will be keeping close scrutiny on the North Carolina-based company in the coming years.
With the deal complete, FairPoint says it becomes the nation's eight-largest telephone company.
The transaction went through extensive regulatory and public scrutiny, and came under criticism from unions representing Verizon employees. On Sunday, it survived last-minute votes by regulators in New Hampshire and Vermont over late news that the interest rates on bonds supporting the deal had grown. Maine regulators signed off on Friday.
On Tuesday, officials from North Carolina-based FairPoint will visit dozens of offices across the region to meet employees - formerly of Verizon, now of FairPoint - and explain what's in store for them. Already, FairPoint has reached tentative agreements with unions representing some 2,500 employees on wage, pension, health care and 401 (k) issues.
The company also has been hiring workers in New England in sales, operations, customer service and other areas, Nevins said. In all, the company plans to hire nearly 700 new workers to perform additional tasks that were previously handled by Verizon employees who worked in other states. Maine Public Advocate Richard Davies said he welcomes FairPoint to the region.
FairPoint, he said, is committed to northern New England, which will represent 85 percent of its holdings. While FairPoint owns 30 other phone companies in 18 states, it grows sixfold in one fell swoop - from 300,000 to 1.9 million lines - with the purchase of Verizon's assets.
"Instead of being a very small piece of a giant corporation, we're now going to be a major portion of a good-sized company," Davies said. "Now we're likely to get more attention than when we were the tail of the dog."
In the coming months, FairPoint plans to move forward with the expansion of its high-speed Internet network which it committed to as part of the sale. It says broadband access will be extended to 83 percent of its customers in Maine within two years, 85 percent of New Hampshire customers within two years, and 77 percent of Vermont customers by the end of 2009.
FairPoint will also be changing the Verizon name to FairPoint on signs and logos found on buildings, on vehicles, in offices and hundreds of other places. Effective Monday, "FairPoint" banners were to be hung over Verizon signs on a dozen buildings across the three states.
The Verizon name, however, won't disappear altogether; the company still owns its wireless operations in the region.
Eventually, customers will have to change their Verizon e-mail addresses to FairPoint addresses, Nevins said.
Perhaps FairPoint's most important task at hand is transforming Verizon's operating system - customer service, billing and the like - into its own.
To make sure the job is done correctly, utility regulators in Maine, New Hampshire and Vermont have hired a technical consultant to oversee the testing of the new system to make sure it will work as promised. The complex job is scheduled to be complete later this year, probably in late September, Nevins said.
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