Cable & Wireless Communications has dropped 8% after issuing shares to pay for a $1.85bn deal.
The company is buying privately owned Columbus International, a fibre based telecoms company serving the Caribbean, Central America and Andean region which is backed by cable television billionaire John Malone.
CWC is funding the deal by paying $707.5m in cash, issuing 1.5bn new shares to the vendors and placing shares worth nearly 10% of the company to help fund the cash element. If all goes to plan Malone will end up with around 13% of the company.
CWC said the deal would help expand its presence in the region, adding Columbus’ 700,000 residential customers. CWC chief executive Phil Bentley said:
This is a transaction that transforms CWC, providing a step change in growth and returns. Columbus offers complementary TV, broadband and B2B capabilities in complementary markets.
CWC also said first half revenues rose 1% to $848m and core earnings climbed 5% to $277m.
Jefferies analyst Jerry Dellis said:
Acquiring Columbus should allow CWC to reach the endgame that Marlin [its investment programme] was intended to deliver faster and with less execution risk. It also leaves a more duopoly market structure across CWC’s footprint, eliminating the competitive risk that would have remained had Columbus remained as a (strong) rival.
We think Columbus accelerates the delivery of CWC’s strategic aims and should create better long-term market structures. There is overlap in 6 countries (Jamaica, St Lucia, Barbados, St Vincent, Antigua, Grenada) plus Trinidad & Tobago (TSTT associate). In these territories, CWC was set to embark on substantial investment in fibre to bolster in broadband pay TV. Columbus provides this infrastructure with high-quality (fully upgraded) cable and 700,000 subscribers. Management is guiding to cost synergies of $85m per annum to be delivered in full by 2017/18 and one-off capital expenditure synergies of $145m in the first 3 years. Integration costs guided at $110m, phased 45%:40%:15% in years 1-3.
With news of the hefty shares issues, CWC is currently down 3.93p at 45.01p’
