Frontier's shares expected to drop as a result of Verizon deal

D.A. Davidson & Co., a leading financial services company, is downgrading the projected value of Frontier Communications shares, as reported in Barron's Magazine, the influential weekly financial publication of The Wall Street Journal.

The new projection is in response to the Verizon-Frontier's proposed landline buyout, which has been approved by regulatory bodies in the three out of the eight states involved.

Barron's expects a 23 percent drop in share value - a drop from "Neutral" to "Underperforming":

With 50% of Verizon's stock held by retail shareholders, and two recent bankruptcies of other stocks that have been distributed by Verizon, we would expect significant selling of Frontier after the distribution.

Why is Barron's pessimistic about the deal? The fates of Verizon's previous landline offloads provide litany of financial horror stories:

Verizon sold its telephone lines in Hawaii. The result: consumers received terrible service quality and Hawaiian Telecom went bankrupt. Verizon sold its lines in Maine, New Hampshire and Vermont to tiny FairPoint. The result: terrible service quality and FairPoint is nearly bankrupt. Verizon spun off Idearc - its Yellow Pages operation. The result: bankruptcy.

Like in Hawaii and New England, the proposed Verizon-Frontier deal is expected to result in layoffs and a breakdown in customer service - and because of a tax loophole, Verizon can walk away from consumers and employees unscathed.

Hopefully, a poor economic forecast from a respected publication will give the Frontier and Verizon shareholders pause.

Frontier Communications' Shares Not Wired for Success (Barron's Magazine)

Proposed Verizon-Frontier merger bad for consumers (Speed Matters)