By Deborah Mary Sophia and Harshita Mary Varghese
(Reuters) -Verizon said on Thursday it will buy fiber-optic internet provider Frontier Communications (OTC:FTRCQ) in an all-cash deal worth $20 billion, as the U.S. wireless carrier looks to grow its subscriber base.
The deal will also help one of the biggest U.S. network providers better compete against rivals AT&T (NYSE:T) and T-Mobile as they double down on unlimited plans and bundling options.
Verizon (NYSE:VZ) has offered $38.50 per share, representing a premium of 37.3% to the closing stock price of Frontier on Sept. 3, a day before reports of a potential acquisition first emerged.
Frontier had a total debt of $11.25 billion as of June 30, which will be refinanced by Verizon as part of the deal.
Shares of Frontier were trading below the offer price at $35.10 after surging nearly 38% in the previous session. Verizon was down marginally.
Frontier has 2.2 million fiber subscribers in 25 states, which will combine with Verizon's roughly 7.4 million such users in nine states and Washington, D.C.
"The acquisition of Frontier is a strategic fit," Verizon CEO Hans Vestberg said, as it provided an opportunity to be more competitive in additional markets.
Together, the companies will have 25 million fiber passings, or the number of potential customer locations a fiber network passes by, Verizon executives said on a conference call. AT&T has about 28 million such locations, according to Morningstar.
The deal is expected to close in about 18 months and will help Verizon, whose fiber network is largely in the Northeast and mid-Atlantic regions, tap into Frontier's coverage in multiple states in the Midwest, Texas and California.
It would also be a reunion of sorts. Verizon had in 2016 sold its TV and internet business in California, Texas and Florida to Frontier in a $10.54 billion deal, which included a portion of its fiber networks and customers.
Analysts said the deal would provide only a modest boost to Verizon.
Verizon's fiber network covers less than 10% of the U.S. and the acquisition will give it roughly another 3%, while AT&T covers less than 15%, MoffettNathanson analyst Craig Moffett said.
"You would describe it as going from small to a little bit less small, but that's about the best you could say about it," Moffett said. "There's simply no conceivable path where they can reach meaningful scale with fiber."