WOW! sells 5 U.S. broadband service areas in 2 separate transactions totaling $1.8B

June 30, 2021
Service area sales enable WOW! to reduce debt and pursue edge-outs and greenfield/commercial opportunities. U.S. cable operator/Cogeco subsidiary Atlantic Broadband and Astound Broadband (dba RCN, Grande Communications and Wave Broadband) are the buyers.

WOW! Internet, Cable & Phone (NYSE: WOW), one of the leading broadband providers in the U.S., today announced that it has entered into two separate definitive agreements to sell its Cleveland and Columbus, Ohio, service areas and its Chicago, Evansville, Indiana, and Anne Arundel, Maryland, service areas for $1.125 billion and $661 million, respectively.

Total transaction gross proceeds will be approximately $1.786 billion. Atlantic Broadband, a U.S. cable operator and subsidiary of Cogeco Communications Inc. (TSE: CCA), has agreed to acquire the Cleveland and Columbus markets in one transaction while in a separate transaction, Astound Broadband (dba RCN, Grande Communications and Wave Broadband) has agreed to acquire WOW!'s Chicago, Evansville and Anne Arundel service areas.

"We are pleased to reach these two agreements as WOW! takes a significant step toward accelerating our broadband-first growth strategy at a pivotal time in our industry," commented WOW! CEO Teresa Elder. "The substantial proceeds from these transactions reflect the attractiveness of our assets and the clear opportunity to expand our position as a trusted provider of reliable, accessible and fast broadband solutions. The divestiture of these markets will enable us to reduce our debt as we continue to execute our broadband-first strategy, including pursuing our Edge-out and greenfield strategies and expanding our commercial services."

Ms. Elder continued: "With Atlantic Broadband and Astound Broadband, WOW! has found good stewards for our operations across these service areas and both share our employee- and customer-centric culture and values. They also have the resources and steadfast commitment to providing customers with the same great quality of service our customers in Illinois, Indiana, Maryland and Ohio have come to expect from WOW!."

According to a press release, upon closing, WOW!'s leverage ratio will be 2.5x, representing a significant reduction from the company's leverage ratio of 5.0x as of March 31, 2021 driven by lower net debt. As part of these transactions, WOW! has entered into Transition Services Agreements with both parties to support post-transaction continuity of service during a transition period. The transactions are expected to close in the second half of the year and are subject to certain regulatory reviews and approvals and the satisfaction of other customary closing conditions.

Upon completion of the transactions, WOW! will continue to serve its customers in 14 service areas in Alabama, Florida, Georgia, Michigan, South Carolina, and Tennessee. On a pro forma basis as of March 31, 2021, the company would have had approximately 532,000 total subscribers, and 506,000 high-speed data revenue generating units. WOW!'s total number of homes passed would have been 1.9 million with a subscriber penetration rate of 29%, up from 26% pre-sale.

For the trailing 12-month period ended March 31, 2021, WOW!'s Adjusted EBITDA would have been $288 million, with an Adjusted EBITDA margin of 39%. Total revenue would have been $731 million, up 1% from the same 12-month period a year-ago with respect to the remaining systems, with HSD revenue of $369 million, up 10% from the same period a year ago.

For its part, Cogeco Communications Inc. (TSX: CCA) released a separate statement announcing that its subsidiary, Atlantic Broadband, has entered into a definitive agreement with WideOpenWest, Inc. (WOW) to purchase all of its broadband systems located in Ohio.

Cogeco/Atlantic Broadband note the WOW Ohio broadband systems pass approximately 688,000 homes and businesses in Cleveland and Columbus and serve approximately 196,000 Internet, 61,000 video and 35,000 telephony customers, as of March 31, 2021. For the twelve months ended March 31, 2021, revenue from the systems was US$244 million and pro forma adjusted EBITDA, including adjustments to reflect the expected cost structure of Atlantic Broadband and run-rate synergies, would have been US$103 million, according to the statement.

"The acquisition of WOW's Ohio broadband systems allows us to add significant scale to our growing and profitable U.S. broadband business," said Philippe Jetté, President and Chief Executive Officer of Cogeco Communications Inc., the parent company of Atlantic Broadband. "The acquisition also represents a strong strategic fit for Cogeco Communications as it is complementary to Atlantic Broadband's existing footprint and capitalizes on its existing platform. Under the guidance of Atlantic Broadband's experienced management team, we are in a unique position to grow our customer base, revenues and earnings, and to pursue our market expansion strategy."

"We are taking a major step in advancing Atlantic Broadband's high-growth strategy by expanding our reach beyond the east coast footprint with attractive markets, that will be strongly receptive to our customer-centric focus, superfast Internet, best-in-class managed WiFi and advanced video services," said Atlantic Broadband President, Frank van der Post. "The Ohio broadband systems' geographic fit with our Pennsylvania operations, combined with our success in winning customer share in competitive markets and our experience integrating acquired properties, will ensure operational efficiencies, a seamless transition for customers, and strong growth in these markets. To support us in our future growth plans, we look forward to welcoming our new colleagues located in Ohio into the Atlantic Broadband family."

Atlantic Broadband affirmed it has entered into a Transition Service Agreement with WOW which will ensure a smooth transition period and allow Atlantic Broadband to further upgrade the network and launch its products and services, including a state-of-the-art IPTV platform.

According to the statement by Cogeco/Atlantic Broadband, the acquisition yields significant strategic benefits including. The move adds scale to Cogeco Communications' U.S. broadband services segment which continues to exhibit superior growth and is expected to keep generating strong operating margins. Atlantic Broadband's Internet service customers will increase by 38 percent from approximately 511,000 to 707,000 pro forma the acquisition. With the acquisition, more than half of Cogeco Communications' revenue will be generated by the U.S. business, the company said in its statement.

Meanwhile, the acquisition expands Atlantic Broadband's geographical footprint in markets with very attractive demographic profiles and economies, the company said; and also leverages Atlantic Broadband's product and sales expertise to increase the customer base and deliver superior growth. The acquired network footprint reaches a sizable portion of the Columbus and Cleveland markets, making it easier to operate and to market products, the company noted. The acquired network sees 100 percent of homes passed served by a DOCSIS 3.1 platform with speeds of 1 Gbps offered in the entire footprint.

The Ohio broadband systems will be purchased for US$1.125 billion; in conjunction with the transaction, Atlantic Broadband expects to realize tax benefits with a present value of approximately US$140 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.

Post the Transition Service Agreement period, Atlantic Broadband expects to achieve run-rate annual synergies of US$2 million. After adjusting for these tax benefits and synergies, the purchase price represents a multiple of approximately 9.6x pro forma adjusted EBITDA for the twelve month period ended March 31, 2021. The purchase price is subject to customary closing adjustments.

The purchase price and transaction costs will be financed through a US$900 million committed secured debt financing at the Atlantic Broadband level, and excess cash on hand. The transaction is subject to regulatory approvals along with other customary closing conditions and is expected to close in the first quarter of fiscal 2022.

Credit Suisse is acting as exclusive financial advisor to Cogeco Communications Inc. Credit Suisse and Wells Fargo are providing the committed debt financing for the transaction. Morgan, Lewis & Bockius LLP is acting as legal advisor on the acquisition to Cogeco Communications and Kirkland & Ellis LLP is acting as legal advisor on the financing.

Atlantic Broadband is the eighth-largest cable operator in the United States, based on the number of high-speed Internet service customers served. The company provides its residential and business customers with Internet, video and telephony services in 11 states: Connecticut, Delaware, Florida, Maine, Maryland, New Hampshire, New York, Pennsylvania, South Carolina, Virginia and West Virginia.

Atlantic Broadband is headquartered in Quincy, Massachusetts. To learn more, visit www.atlanticbb.com.

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