Cable & Wireless to acquire Flow parent for US$3b. Digicel knocks deal as bad for competition
Digicel's Group slow creep into the cable market has been trumped by chief rival Cable & Wireless Commu-nications (CWC) with a massive deal announced on Tuesday that is expected to eventually merge the operations of phone company LIME with triple-play operator Flow.
CWC is buying Columbus International Inc, which owns Flow networks in seven markets and Karib Cable in one, for about US$3 billion, inclusive of debt.
The parties have a conditional agreement on the cash and shares transaction for 100 per cent of Columbus' equity, but Digicel is already signalling that it will be seeking the intervention of regulators, saying the deal raises issues about competition.
Under the agreement between the parties, CWC will pay cash of US$707.5 million and issue 1,557,529,605 new ordinary shares in CWC to three Columbus shareholders, giving them 36 per cent ownership in Cable & Wireless.
The cash and share issue are valued at US$1.85 billion. Columbus' debt of about US$1.2 billion will also be assumed by CWC.
It also plans to invest US$145 million of capital in the operation to be spent over three years, dating from the closing of the acquisition.
Columbus offers broadband, fixed-line telephony and cable or subscriber television services to a customer base of about 700,000 - operating as Flow in Jamaica, Trinidad & Tobago, Barbados, Grenada, St Vincent & the Grenadines, St Lucia and Curaçao and as Karib in Antigua.
Its business-to-business dealings are executed through subsidiary Columbus Business Solutions, and it offers fibre connectivity to some 42 markets through Columbus Networks.
"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. Together, we will create the best-in-class quad-play offering in the region, delivered on a superior mobile, fibre and subsea network," said CWC Chief Executive Phil Bentley.
CWC operates in 17 regional markets, serving 5.6 million customers, which currently deliver revenue of US$1.7 billion for the British-based company. The Columbus deal gives CWC an additional US$500 million of annual revenue.
The deal will have to hurdle regulatory approval across Columbus' various markets.
Digicel Group, whose customer base amounts to 13 million in 33 markets spanning this region and the Pacific, says it is concerned that the deal could tilt the playing field in the Caribbean.
"The issues that will need to be addressed include such matters as fairness in spectrum allocations, local loop unbundling, price bundling generally as well as a myriad of other likely issues which will only become apparent once Digicel and other agencies and bodies have been fully appraised of the details of the proposed transaction and the likely resultant impact on the telecoms market in the region," the mobile company said in a statement.
Digicel itself owns cable TV assets in six markets, including four in the Caribbean - a business line it began building out in this region just last year. Its latest acquisition on that front was Telstar Cable in Jamaica.
Digicel's cable TV purchases began in November 2013, with Caribbean Cable Communications Holding Limited, a cable TV and Internet service provider in Anguilla, Nevis and Montserrat. That was followed in February by SAT Telecommunications, which provides a range of TV, telephony and broadband internet services to residential and business customers in Dominica, then WIV Cable TV in the Turks and Caicos Islands in April.
Columbus is a privately owned diversified telecommunications and technology services company.
The new CWC shares - totalling 9.99 per cent of the British telecoms' outstanding share capital - will be issued to investment vehicles controlled by director and co-founder of Columbus, John Risley, shareholder John Malone, and president, chief executive officer and co-founder of Columbus, Brendan Paddick.
"As a result, the principal vendors will in aggregate hold approximately 36 per cent of the ordinary shares in the enlarged group," said CWC's offer prospectus.
CWC and the Columbus shareholders have agreed to a lock-up and put option arrangement, under which the sellers can require CWC to acquire certain of the 'consideration shares' at the issue price of US$0.7349 per share, based on certain triggers.
For the year ending 2013, Columbus earned revenue of US$505 million, EBITDA of US$216 million and total operating profit of US$104 million.
At half-year June 2014, it reported revenue of US$284m, EBITDA of US$118m and operating profit of US$48 million.
CWC itself reversed a loss of US$8 million at half-year ending September 2014 to deliver net profit of $103 million off improved revenue of $848 million. Revenue at HY 2013 was marginally lower at $841 million.