Frontier Communications Corp (NASDAQ:FTR) on the escrow frontier
The Oregon Public Utilities Commission and the West Virginia Public Service Commission released $21.8M from escrowed funds to Frontier Communications Corp (NASDAQ:FTR). These funds had been escrowed in connection with the company’s July 2010 – acquisition of wireline properties from Verizon. Two WV escrows totaled $21.4M while $400,000 was the balance amount in Oregon’s escrow fund. These funds reimburse Frontier for previous investments that enhanced service quality and spread the broadband networks.
Senior Vice President and General Manager for West Virginia, Dana Waldo said that FTR asked West Virginia’s PSC to release $14.7M from a service-quality escrow account and $6.7M from a broadband-escrow account. Verizon had funded a service-quality account at $72.4M. In another account, Frontier had funded $48M towards broadband deployment. The PSC granted the company’s request in full. In Oregon, $400,000 that was released in escrow funds by the PUC, was the last of over $15M in funds that Frontier had put into escrow, as a condition of the acquisition-approval.
What is escrow?
Every business acquisition comes with its own set of risks. The purchaser has to deal with uncertainties such as unrecorded-liabilities in the sellers’ books such as tax bills and legal suits or even sizeable deviations of actual-profits. It is possible to mitigate some of these risks by postponing part of the payment of the purchase price on either the occurrence or the non-occurrence of certain events in the future. Setting up an escrow is a recommended solution to deal with situations such as these. An Escrow account is essentially a blocked bank-account that is held with a financially trusted, neutral third-party. The third-party may use a dedicated client-account at a bank.
Using a client-account ensures that the money is protected and that it will not be used for anything apart from the intended transaction. The Escrow account can be used by the buyer to deposit money while they are waiting for a certain amount of time to see if any unrecorded liabilities in the seller’s books, rear their head. Professional advisers of the seller and buyer are aware of how an escrow agreement can benefit them.