Cable ONE to acquire Fidelity CommunicationsMonday, April 1st, 2019
Transaction extends Company’s footprint in non-urban markets
PHOENIX — Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable ONE”) today announced it has entered into a definitive agreement with Fidelity Communications Co. to acquire Fidelity’s data, video and voice business and certain related assets (collectively, “Fidelity”) for $525.9 million in cash, subject to customary post-closing adjustments.
Fidelity Communications Co. is a family-owned cable operator that has been providing residential and business services to customers throughout greater Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas for nearly 80 years. Fidelity’s network passes approximately 190,000 homes and it has approximately 114,000 residential primary service units (“PSUs”) and 20,000 business PSUs. Fidelity is headquartered in Sullivan, Missouri.
“We are thrilled to welcome Fidelity associates and customers to the Cable ONE family,” said Julie Laulis, President and CEO of Cable ONE. “Fidelity is a fantastic geographical, cultural and business fit. Its operating philosophy and customer-centric focus are similar to our own. That, coupled with future growth opportunities within or near our existing footprint, make this an exciting acquisition.”
Fidelity has upgraded systems and a high-capacity plant, including more than 5,100 network plant miles and over 1,600 fiber route miles, capable of delivering top-tier speeds and services. More than 50 percent of Fidelity’s revenues are derived from residential high-speed data and business services.
“For nearly 80 years, Fidelity has provided a superior customer experience and innovative technologies to residential and business customers in our markets, and I am incredibly proud of our employees and all that we have accomplished together,” said John Colbert, President of Fidelity Communications Co. “We are excited to join an organization that shares our values of community, collaboration and excellence. Cable ONE is an exceptional business with dedicated and passionate associates and a strong commitment to the communities they serve. We look forward to working with the Cable ONE team as we bring our two companies together.”
Fidelity generated an estimated $45 million in last quarter annualized (“LQA”) Adjusted EBITDA for the fourth quarter of 2018. Cable ONE expects to realize $15 million in estimated annual run-rate cost synergies within three years of closing the transaction. The acquisition is also expected to provide estimated tax benefits of approximately $87 million on a present value basis.
The purchase price of $525.9 million represents multiples of Fidelity’s estimated LQA Adjusted EBITDA for the fourth quarter of 2018 of:
- 11.7x before taking into account estimated run-rate cost synergies and the present value of anticipated tax benefits;
- 8.8x after assuming the immediate realization in full of $15 million in estimated run-rate cost synergies but before adjusting for the present value of anticipated tax benefits; and
- 7.3x after adjusting for the present value of anticipated tax benefits and assuming the immediate realization in full of $15 million in estimated run-rate cost synergies.
Fidelity’s LQA net income for the fourth quarter of 2018 was approximately $6 million. Fidelity’s estimated LQA fourth quarter 2018 results are preliminary and actual results may differ from those provided herein due to the completion of review by Fidelity Communications Co.’s independent auditor, application of final adjustments and other developments. The financial results for Fidelity in this press release have been derived from unaudited financial information prepared by Fidelity Communications Co., without adjustment to conform to the accounting policies and methodologies used by Cable ONE. The accounting policies and methodologies used by Fidelity Communications Co. differ in certain respects from those used by Cable ONE, but Cable ONE does not believe these differences are material. The financial results for Fidelity presented on an LQA basis represent Fidelity’s estimated net income or Adjusted EBITDA for the fourth quarter of 2018 multiplied by four.
The all-cash transaction is expected to be funded through a combination of cash on hand, revolving credit facility capacity and the proceeds of new indebtedness. The transaction is subject to certain regulatory approvals and other customary closing conditions and is expected to be completed during the fourth quarter of 2019.
Cravath, Swaine & Moore LLP acted as legal advisor to Cable ONE on this transaction.
Cable ONE anticipates providing additional information regarding the acquisition during the Company’s First Quarter 2019 earnings call in May 2019.
Use of Non-GAAP Financial Measure
The Company uses certain measures that are not defined by generally accepted accounting principles in the United States (“GAAP”) to evaluate various aspects of its business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as a substitute for, net income reported in accordance with GAAP. This term, as defined by Cable ONE, may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA is reconciled to net income below.
“Adjusted EBITDA” for Fidelity is defined as net income plus depreciation and amortization, compensation expense retained by Fidelity, gain on sales of fixed assets and other income, net. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company’s and Fidelity’s business as well as other non-cash or special items and is unaffected by the Company’s or Fidelity’s capital structure or investment activities, as applicable. This measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the Company’s or Fidelity’s cash cost of financing. These costs are evaluated through other financial measures.
The Company uses Adjusted EBITDA to assess its performance. In addition, Adjusted EBITDA generally correlates to the measure used in the leverage ratio calculations under the Company’s credit facilities and senior unsecured notes to determine compliance with the covenants contained in the credit facilities and the ability to take certain actions under the indenture governing the notes. Adjusted EBITDA is also a significant performance measure used by the Company in its annual incentive compensation program. Adjusted EBITDA does not take into account cash used for mandatory debt service requirements or other non-discretionary expenditures, and thus does not represent residual funds available for discretionary uses.
The Company believes Adjusted EBITDA is useful to investors in evaluating operating performance.
Adjusted EBITDA and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in the Company’s industry, although the Company’s measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies.
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