Vermont Public Service Board approves FairPoint-Verizon deal
The Vermont Public Service Board finally approved, February 15, 2008, the massive deal between FairPoint Communications and Verizon to buy the 1.6 million telephone landlines in Vermont, New Hampshire and Maine. However, the Vermont regulators added another $31.7 million in stipulations to the $2.7 billion deal.
FairPoint's initial reaction to the new stipulations was guarded, in that the North Carolina company was not sure that Verizon would go along with the add-ons.
Verizon would be required to pay $25 million for a performance enhancement plan that would spend up to $12.5 million a year to upgrade service if some milestones were not met. Also, Verizon would have to deposit $6.7 million in an escrow account to fund the removal of dual utility poles around the states.
In negotiations with the Vermont Department of Public Service prior to the ruling, FairPoint and Verizon had agreed to the following changes to the original deal: Verizon would provide FairPoint with $235.5 million in working capital, which would effectively reduce the purchase price by that amount; FairPoint would be required to reduce dividiends by 35 percent ($50 million a year), which would give the company that much more money to handle it obligations under the agreement; FairPoint would be required to invest at least $40 million a year in the Vermont network during the first three years of operation; and FairPoint would be required to offer broadband Internet service to 100 percent of its customers in at least half of its exchanges by 2010.
Except for the broadband and utility pole requirements, most of the add-ons are related to making the deal more financially viable for FairPoint. The company had initially reported it would have to borrow about $2 billion to buy the three-state network. Maine regulators have already accepted the deal with conditions; New Hampshire has yet to rule.
Maine Public Utilities Commission on February 1, 2008, issued a written order approving FairPoint's proposed acquisition of Verizon's wireline business in Maine. The PUC had previously agreed to the deal and this latest move formalizes its ruling. It stated that it will reserve the right to re-visit its decision based on what the regulators in Vermont and New Hampshrie ultimately rule.
In a joint release at the end of January, FairPoint Communications, Inc and Verizon said they expected transer of ownership of Verizon Communications' 1.6 million landlines in Vermont, New Hampshire and Maine for $2.7 billion to be done by February 29.
The Vermont Public Service Department and the staff of the New Hampshire Public Utilities Commission in January agreed to the deal with conditions, such as on a de facto reduction of the price and on reducing the level of dividends FairPoint will be allowed to pay its shareholders (for updates, www.vermontbiz.com). The Federal Communications Commission also gave its approval in January.
The regulators in both Vermont and New Hampshire still need to approve the deals, which are negotiated and approved separately. Meanwhile, Maine regulators already have approved a deal similar to those in Vermont and New Hampshire. Mains PUC, however, said it cold revisit its decision based on the structure of deal in the other two states.
In addition to the key financial conditions in the amended stipulation in Maine and the key conditions in the settlement agreement with the Vermont Department of Public Service, FairPoint committed to additional conditions in New Hampshire which address capital expenditures, network and service quality improvement plans, broadband expansion and assurances of financial viability. The financial viability of FairPoint has been a concern of regulators and opponents of the deal, including the IBEW union. FairPoint will have to borrow upwards of $2 billion.
The Vermont and New Hampshire agreements mimic the plan previously approved in Maine, which includes a steep reduction in FairPoint's shareholder dividend (35 percent, resulting in a $50 million per year savings) and what is a de facto reduction in the price of the sale by $235.5 million. The financial moves were considered important in ensuring that FairPoint would be financially able to consummate the deal and live up to other provisions in the agreement, including extension of DSL service and other service and reliability guarantees.
The deal also includes penalties up to $12.5 million if goals are not met. The Vermont agreement states that FairPoint must invest at least $40 million each year for the first three years and starting in 2009 spend at least $35 million to reduce debt. The entire deal still needs final approval by the Vermont Public Service Board, and by the regulatory body in New Hampshire.
FairPoint has also agreed to make broadband Internet access available to all of its customers in at least half its exchanges by 2010.
Even if FairPoint ultimately gains approval, discrepancies in the final rulings among the three states would have to be dealt with by each state's regulatory board.