Co­geco strikes big­gest deal in 60-year his­tory

The Hamilton Spectator - - BUSINESS - ROSS MAROWITS

MON­TREAL — Co­geco Com­mu­ni­ca­tions inked the big­gest acquisition in its 60-year his­tory on Mon­day with a US$1.4-bil­lion deal to buy the MetroCast cable sys­tems and ex­pand its U.S. pres­ence.

Co­geco chief ex­ec­u­tive Louis Audet said he sees growth op­por­tu­ni­ties that are dou­ble what is avail­able in Canada by in­creas­ing the num­ber of TV, in­ter­net and phone ser­vices to each cus­tomer.

The Mon­treal-based com­pany will make the acquisition through its At­lantic Broad­band sub­sidiary, which signed a de­fin­i­tive pur­chase agree­ment with Har­ron Com­mu­ni­ca­tions LP, a fam­ily busi­ness.

Un­der the agree­ment, Co­geco said the Caisse de de­pot pen­sion fund will pro­vide US$315 mil­lion in re­turn for a 21 per cent eq­uity stake in At­lantic Broad­band’s hold­ing com­pany.

The deal, which fol­lows Co­geco’s acquisition of MetroCast’s net­work in Con­necti­cut for US$200 mil­lion in 2015, will ex­pand At­lantic Broad­band’s pres­ence to a to­tal of 11 states.

Audet said MetroCast is present in smaller com­mu­ni­ties where com­pe­ti­tion is frag­mented and cus­tomers have higher av­er­age in­comes than the U.S. av­er­age and are more likely to adopt tech­nol­ogy than At­lantic Broad­band cus­tomers and the U.S. over­all.

“So there is in­ter­est­ing growth and that’s what, among other things, in­ter­ested the Caisse de de­pot et place­ments which are join­ing us in this de­vel­op­ment of the Amer­i­can mar­ket,” he said in an in­ter­view.

Co­geco’s an­nual U.S. rev­enues are ex­pected to in­crease by 33 per cent to US$704 mil­lion, while its con­sol­i­dated rev­enues will reach C$2.5 bil­lion.

An­a­lyst Drew McReynolds of RBC Do­min­ion Se­cu­ri­ties said he views the trans­ac­tion as “neu­tral” be­cause the pre­mium paid for MetroCast will be off­set by growth, op­er­a­tional sav­ings and the Caisse’s in­vest­ment.

“Strate­gi­cally, the trans­ac­tion fits with the com­pany’s long-stated strat­egy of U.S. cable ex­pan­sion via tuck-in ac­qui­si­tions, and thus is in line with our ex­pec­ta­tions,” McReynolds said in a note for clients.

An­a­lyst Ma­her Yaghi of Des­jardins Cap­i­tal Mar­kets said there is po­ten­tial growth by in­creas­ing the pen­e­tra­tion of ser­vices, as Co­geco has done in past deals. “Over­all, we see this trans­ac­tion as a good move to in­crease the size of the U.S. cable as­sets by buy­ing a busi­ness that has very lit­tle fi­bre-to-the-home com­pe­ti­tion and with favourable de­mo­graph­ics,” he wrote in a re­port.

The deal is ex­pected to close in Jan­uary sub­ject to reg­u­la­tory ap­provals.

Co­geco is the sec­ond largest cable op­er­a­tor in On­tario and Que­bec.

THE CANA­DIAN PRESS IM­AGES FILE PHOTO

Co­geco will pay $1.4 bil­lion for MetroCast, ex­pand­ing its U.S. op­er­a­tions.

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