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Frontier jumps on asset sales; Lions Gate dips after analyst downgrade

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Frontier jumps on asset sales; Lions Gate dips after analyst downgrade

Frontier Communications Corp.'s deal to sell its assets in four Northwestern states in the U.S. sent its shares soaring for the week ended May 31, marking the company's latest efforts to tackle its mounting debt. Meanwhile, Lions Gate Entertainment Corp. stock dipped during the week following an analyst downgrade, which cited concerns about the company's content production.

Frontier

The communications provider on May 29 announcedon May 29 it is selling its assets in Washington, Oregon, Idaho and Montana for $1.35 billion in cash to private investment firm WaveDivision Capital LLC, in partnership with Searchlight Capital Partners LP. The company touted the agreement as one that would reduce its debt and strengthen liquidity. Analysts, however, maintained that the deal does nothing to address ongoing concerns around the sustainability of its business model.

"Frontier still has limited avenues to address the $2.7 billion of unsecured debt that matures in 2022 due to its lack of secured debt capacity, low free operating cash flow (FOCF) and limited access to the capital markets," S&P Global Ratings analyst Ryan Gilmore wrote in a May 30 note.

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Similarly, CFRA analyst Keith Snyder in a May 29 research note maintained his "sell" rating on Frontier stock, saying the company's recent asset sales could weaken its portfolio.

"We see these asset sales as an act of desperation, which will help [Frontier] in the short run, but will harm it long-term as it cuts its revenue base, further limiting its ability to reduce outstanding debt," Snyder wrote.

Frontier in February of 2018 suspended its regular quarterly dividend to accelerate debt reduction. The company ended 2018 with $17.40 billion in total debt, down slightly from $17.86 billion in the previous year.

Frontier shares were trading up 5.08% for the week around midday May 31, at $1.86 apiece.

Lions Gate

The studio, which has been the subject of deal chatter recently, saw its shares fall this week following an analyst downgrade.

Argus analyst Joseph Bonner cut his rating on Lions Gate stock to "hold" from "buy," citing a "remarkably fallow" period for content production, according to TheFly.com. Specifically, Bonner noted that Lions Gate unit Starz has become the company's main "profit driver," even though it lost 2.8 million cable subscribers in fiscal year 2019.

Reports have circulated that CBS Corp. offered $5 billion for Starz, while Lions Gate countered with $5.5 billion. Lions Gate bought Starz for about $4.4 billion in 2016.

Some media analysts have said CBS would be better off purchasing all of the holdings of Lions Gate instead of just Starz. If CBS-owned Showtime and Starz were combined, CBS could become the largest operator of premium networks in the U.S.

Lions Gate shares were trading at $14.46 around midday May 31, down 2.89% from their May 24 close.

Gannett/GateHouse

USA Today publisher Gannett Co. Inc. and GateHouse Media LLC, which is owned by New Media Investment Group Inc., saw movement amid reports that the two newspaper powerhouses have discussed a potential merger. A combination would create the largest U.S. publisher by number of titles and circulation.

Citing sources with knowledge of the matter, The Wall Street Journal reported May 30 that the two companies have recently held merger talks. The news comes weeks after Gannett defeated MNG Enterprises Inc. in a proxy battle. MNG Enterprises had offered to acquire Gannett for $12 per share in cash, but Gannett said that the unsolicited offer undervalued the company.

Gannett has also held deal talks with other newspaper companies, including Tribune Media Co. and McClatchy Co., the Journal reported.

Gannett stock was trading at $7.59 midday May 31, down 2.57% for the week. Meanwhile, New Media investment Group was trading up 1.39% for the week, at $9.13 a share.