Maglan Urges Sale of FairPoint and Demands a Seat on Board

  • Hedge fund says telecom’s stock could be worth 60% more
  • Letter says company’s turnaround effort has run its course

Maglan Capital renewed its demand that FairPoint Communications Inc. put itself up for sale, saying the telecom carrier’s shares could be worth 60 percent more than the current price.

The hedge fund, which owns a stake of about 7.5 percent, asked for a seat on FairPoint’s board and urged the company to buy back shares in the open market, saying they could fetch $23 apiece, according to a letter obtained by Bloomberg News.

The stock closed at $14.65 on Thursday, giving the company a market value of more than $390 million. FairPoint’s board should form a committee to review strategic alternatives led by Maglan’s appointee, according to the letter, which was signed by President David Tawil and Chief Investment Officer Steven Azarbad.

FairPoint shares have dropped more than 11 percent in the past 12 months, while peers such as Windstream Holdings Inc. have gained more than 70 percent over the same period, according to data compiled by Bloomberg. The hedge fund previously demanded a sale in a June 6 letter.

A spokeswoman for Charlotte, N.C.-based FairPoint had no immediate comment and Azarbad declined to elaborate on the letter. His fund specializes in investing in companies that are going through an operational turnaround.

While the company posted “solid” second-quarter results, “the overwhelming majority of FairPoint’s operational turnaround is complete, and any remaining organic improvement opportunities are merely at the fringes,” Maglan wrote, adding that “the company is prime to be sold.” The fund’s previous request for buybacks and dividends was dismissed “without any visible vigorous review,” according to the letter.

Verizon Deal

FairPoint used debt to acquire Verizon Communications Inc.’s landlines in Vermont, New Hampshire and Maine in 2008. But customer defections, poor service quality and billing glitches hurt the bottom line and hampered state-mandated broadband construction, forcing it to file for bankruptcy in 2009. A restructuring plan reduced the debt, and the company replaced its board and senior management.

Like other landline service providers, FairPoint has lost subscribers as consumers switch to mobile phones or digital voice service offered by cable companies.

The company operates in 17 states with about 2,700 employees, primarily in rural communities and small urban markets, according to the company’s annual regulatory filing. Customers include 311,000 broadband subscribers and about 410,000 residential voice lines, the filing shows.

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