News release Cogeco

Cogeco Communications Inc. announces that Atlantic Broadband will acquire all of the Metrocast cable systems

Private Equity Montréal, Québec and Quincy, MA,
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Today Cogeco Communications Inc. (TSX: CCA) announced that its subsidiary, Atlantic Broadband has entered into a definitive agreement with Harron Communications, L.P. to purchase all of its cable systems operating under the MetroCast brand name (“MetroCast”). Cogeco Communications will finance this acquisition through its Atlantic Broadband subsidiary with a combination of committed secured debt and an equity investment by Caisse de dépôt et placement du Québec (“CDPQ”).

MetroCast’s networks pass close to 236,000 homes and businesses in New Hampshire, Maine, Pennsylvania, Maryland and Virginia and serve approximately 120,000 Internet, 76,000 video and 37,000 telephony customers. Calendar 2017 revenue is expected to be US$230 million and Adjusted EBITDA is projected to be US$121 million. 

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“The acquisition of the MetroCast cable systems allows Atlantic Broadband to increase its presence in the growing and lucrative U.S. cable market,” said Louis Audet, President and Chief Executive Officer of Cogeco Communications Inc., the parent company of Atlantic Broadband.  “The MetroCast systems are a strong strategic fit for Atlantic Broadband. With this acquisition, we are increasing our customer base in attractive markets adjacent to the ones we currently serve. Under the guidance of Atlantic Broadband’s best-in-class management team, we are in a unique position to grow our customer base, revenues and profits.”

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“We are delighted to be partnering with CDPQ in this transaction, providing us with a long-term partner with a similar vision. The partnership will enable us to pursue our growth objectives in the U.S. cable market in the future. CDPQ’s investment also highlights the value of these assets and our U.S. business, as well as the growth opportunity embedded in these businesses,” concluded Mr. Audet.

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“As a long-term investor, CDPQ seeks opportunities to invest in businesses that are resilient to economic cycles, are led by experienced teams and have the ability to sustain growth over time. Cogeco is a good example of this, and we look forward to investing by its side as it pursues its North American expansion,” says Christian Dubé, Executive Vice-President, Québec, at Caisse de dépôt et placement du Québec.

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“After our highly successful acquisition and integration of the MetroCast Connecticut system almost two years ago, we understand first-hand the sizable residential and business growth potential that we can expect with the remaining MetroCast systems.  We have a proven integration plan and a track record of successfully migrating our platforms and service offerings,” said Atlantic Broadband President and Chief Executive Officer, Richard Shea. “These well-maintained systems deliver attractive demographics which make them ideal for our suite of residential video, Internet and telephony services as well as our business services.  We look forward to welcoming MetroCast customers and employees to Atlantic Broadband.”

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Acquisition Rationale

  • Adds scale in the American Broadband services segment which continues to exhibit steady growth and is expected to keep generating strong operating margins. Atlantic Broadband’s Primary Service Units (PSU) will increase from approximately 602,000 to 835,000 pro forma the acquisition.   
  • MetroCast’s systems are largely located in non-metropolitan markets with very attractive demographic profiles and market dynamics.
  • Opportunity to leverage Atlantic Broadband’s product and sales expertise to quickly increase the customer base and deliver superior growth.
  • High quality, fully digital network, comprised of 860 MHz or fiber to the home in 95% of the network, and providing 150 Mbps Internet service across its footprint.
  • Minimal execution risk due to management's prior successful experience integrating MetroCast's Connecticut system, and the common service delivery and back office platforms.
  • Further establishes Atlantic Broadband as a strategic platform in the U.S. with a diversified geographical footprint from Maine to Florida.

Valuation Highlights and Acquisition Financing

Substantially all of the assets of MetroCast will be purchased for US$1.4 billion. In conjunction with the transaction, Atlantic Broadband expects to realize tax benefits with a present value of approximately US$310 million. These benefits are mostly due to the tax amortization of intangible assets in an asset purchase transaction where such intangible assets are stepped up to current market value. After adjusting for these tax benefits, the purchase price represents a multiple of approximately 9.0x Calendar 2017 expected Adjusted EBITDA for the business being acquired. The purchase price is subject to customary closing adjustments.

The acquisition financing structure preserves Cogeco Communications Inc.’s strong financial position. CDPQ has committed a US$315 million equity investment for a 21% interest in Atlantic Broadband’s holding company, while the remaining balance of the purchase price and transaction costs will be financed through a committed secured debt financing at Atlantic Broadband, which is non-recourse to Cogeco Communications Inc. CDPQ’s equity interest represents an implied multiple of approximately 8.8x Calendar 2017 expected Adjusted EBITDA of Atlantic Broadband pro forma for the acquisition of MetroCast, and adjusted for the present value of various tax benefits estimated at approximately US$420 million related to the tax amortization of the intangible assets acquired and the current tax losses carried forward at Atlantic Broadband.

The transaction is subject to regulatory approvals along with other customary closing conditions and is expected to close in January 2018.

Advisors

Credit Suisse is acting as exclusive financial advisor to Cogeco Communications Inc. Credit Suisse and BofA Merrill Lynch are providing the committed debt financing for the transaction. Stikeman Elliott S.E.N.C.R.L., s.r.l. and Kirkland & Ellis LLP are acting as legal advisors to Cogeco Communications Inc. Morgan, Lewis & Bockius LLP is acting as legal advisor to Harron Communications, L.P. CIBC Capital Markets and Osler, Hoskin & Harcourt LLP are acting as advisors to CDPQ. 

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ABOUT ATLANTIC BROADBAND

Atlantic Broadband, a wholly-owned subsidiary of Cogeco Communications Inc., is the 9th largest cable operator in the United States, based on the number of television service customers served. The company currently provides video, Internet and telephony services to approximately 239,000 television service customers located in five operating regions: western Pennsylvania, Miami Beach, Maryland/Delaware, Aiken, S.C. and eastern Connecticut. Atlantic Broadband is headquartered in Quincy, Massachusetts. Additional information is available at www.atlanticbb.com.

ABOUT COGECO COMMUNICATIONS INC.

Cogeco Communications Inc. is a communications corporation. It is the 8th largest cable operator in North America, operating in Canada under the Cogeco Connexion name in Québec and Ontario, and in the United States under the Atlantic Broadband name. Cogeco Communications Inc. provides its residential and business customers with video, Internet and telephony services through its two-way broadband fibre networks. Through its subsidiary Cogeco Peer 1, Cogeco Communications Inc. provides its business customers with a suite of information technology services (colocation, network connectivity, hosting, cloud and managed services), through its 16 data centres, extensive FastFiber Network® and more than 50 points of presence in North America and Europe. Cogeco Communications Inc.’s subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CCA).

ABOUT CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC 

Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at December 31, 2016, it held $270.7 billion in net assets. As one of Canada's leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.

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