Canada's fourth-largest cable TV company will get a toehold in the U.S. market with a $1.36-billion US deal to buy regional provider Atlantic Broadband, the Montreal company's first big acquisition since its failed venture into Portugal.
Cogeco Cable Inc.'s purchase of Atlantic Broadband will give it a presence in five eastern states stretching from Pennsylvania to Florida.
"This is an attractive entry point into the United States market," president and chief executive Louis Audet said during a conference call Wednesday to discuss the deal.
"The quality of the infrastructure is high and this provides a nice increase to Cogeco Cable and gives us potential to grow further. There is room for further U.S. growth either through an increase in penetration of all of the services or through tuck-in acquisitions, a number of which are available," Audet said.
Atlantic Broadband is the 14th-largest cable television system operator in the United States, with operations in Pennsylvania, Florida, Maryland, Delaware and South Carolina and 252,000 basic cable customers. The privately owned company also offers Internet and telephone services to residential and business customers.
Cogeco Cable has had trouble expanding beyond its Canadian base, with an expansion into Europe through the purchase of a Portuguese company turning into a money-losing proposition. Cogeco sold its Portuguese cable operation earlier this year for more than $59 million after purchasing it for about $600 million in 2006.
When asked if shareholders should be concerned after the failed Portuguese acquisition, Audet said there shouldn't be any worry.
"I am sorry that people could imagine such concerns," he told analysts.
Audet noted there was little room for acquisitions left at home and said "consolidation is substantially over" in Canada.
U.S. difficult to crack
Cogeco Cable, which operates primarily in Ontario and Quebec, says it will buy Atlantic Broadband for a combination of cash on hand and money borrowed under existing financing agreements.
The U.S. market has often been difficult for Canadian companies to crack.
Both Rogers and Shaw — now Canada's two largest cable companies — made attempts at different times several years ago but later withdrew.
Audet said the Atlantic Broadband's market is geographically and competitively similar to Cogeco's.
"What you have in the U.S. is a competitive market, but different actors in various markets. It's very fragmented."
Job losses at Atlantic Broadband aren't expected with Cogeco absorbing all of its employees.
The proposed deal will require several regulatory approvals, including from U.S. competition and telecommunications bodies.
Atlantic Broadband is currently owned by a fund managed by ABRY Partners and by Oak Hill Capital Partners, LP.