This Hedge Fund Manager Bought A 7.6% Stake In FairPoint Communication: Here's Why

David Tawil is the co-founder of Maglan Capital and was a guest on Thursday's daily edition of Benzinga's Premarket Prep. His fund recently acquired a 7.6 percent stake in FairPoint Communications Inc (NASDAQ: FRP), a telecommunication company that provides data, voice and communications services to its customers.

Maglan Capital focuses on investing in companies that are undertaking a turn-around initiative, and FairPoint Communications was an ideal candidate for an investment.

The fund released a letter to FairPoint's board of directors and CEO, saying the company's stock is trading at a "significant discount" to its peers. Accordingly, the fund is urging the board to consider the implementation of "potential value-creating initiatives," including a sale of its self, a recurring dividend and share repurchase program, among others.

Related Link: UPDATE: Maglan Capital's Full Letter To FairPoint CEO, Board

Tawil did acknowledge during the Premarket Prep show that his fund has been an investor in FairPoint dating back six years ago when the company declared Chapter 11 bankruptcy.

Why FairPoint?

"The company is wildly undervalued in reference to its peers," he told the morning show hosts Joel Elconin and Spencer Israel. "It's the sixth largest telecommunications operator."

Tawil continued that after declaring bankruptcy, FairPoint was on a mission to turn its business around, cut capital expenditures, stabilize its revenue and raise its EBITDA and cash flow — all of which they "have done over the last number of years."

However, unlike the vast majority of its peers, FairPoint does not issue a dividend to shareholders even though it has the capacity to do so. Accordingly, telecommunication investors are overlooking the stock and it is valued at a discount to similar companies.

Why Now?

Tawil added that FairPoint could also refinance some of its current debt.

"We have been very patient with the company with respect to its operation and turnaround," he continued. "Now it is time to go ahead and focus on rewarding shareholders that have been there for them for all this time."

Tawil pointed out that there is a healthy amount of M&A activity in the telecom space which may play in FairPoint's favor as the only possible venue of growth is through acquisition. As such, any of the major telecom companies could have no issue with obtaining the necessary financing to buy the company at a "very cheap multiple."

He suggested that an appropriate takeout price would be around $23 per share.

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