Cogeco on U.S. cable ‘growth streak’ with $1.4B deal
Cogeco Communications Inc. has once again upped its stake in the U.S. cable market with its largest acquisition yet, a deal CEO Louis Audet says will enable it to continue its “growth streak” south of the border.
The Montreal-based cable company announced Monday its subsidiary Atlantic Broadband will buy MetroCast from Harron Communications LP for US$1.4 billion. This marks Cogeco’s third U.S. acquisition in the past five years, expanding its American cable business to 36 per cent of its adjusted earnings up from 26 per cent.
Audet can foresee a future where Cogeco’s American operations account for an even larger portion of its business, given its U.S. assets are growing six to seven per cent annually compared to three per cent in Canada.
“We’re doing fine in Canada, but clearly there are more acquisition opportunities and growth opportunities in the U.S.,” he said in an interview. “It’s entirely possible that in five years when we look back we’ll say, ‘Hey, the majority of this company is now U.S. cable systems.”
Cogeco is the sixth largest cable, satellite or IPTV provider in Canada, according to the CRTC. The company turned to the United States for growth due to the high level of market concentration in Canada. Its focus has been on smaller markets that are of less interest to the big telephone companies, Audet said.
“For us, it’s a matter of finding these markets and convincing owners to sell to us,” he said.
The latest deal, funded in part with US$315 million from the pension fund Caisse de dépôt et placement du Québec, adds 236,000 premises to Cogeco’s network in New Hampshire, Maine, Pennsylvania, Maryland and Virginia. (Cogeco already purchased MetroCast’s Connecticut operations for US$200 million in 2015.)
Analysts and investors responded positively. Cogeco’s stock price rose 2.87 per cent to close at $82.09 on Monday.
It’s a notable shift from the reaction to Cogeco’s first foray south. When it bought Atlantic Broadband for US$1.36 billion in 2012, its stock plummeted. Investors found the deal too risky given Cogeco’s recent failure to expand in Portugal and the withdrawal of its Canadian cable competitors from the United States.
But results since have proven the American expansion strategy was the right way to go, Audet said. “The investment thesis has proven out. I think people recognize that and it’s showing in the stock price,” he said.