The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas is seeking ‘fast track’ approval for one of its US acquisitions by December 15, Tribune Business can reveal, on the grounds that it would be exposed to “a substantial financial loss” if the deal failed to close by that date.

The BISX-listed communications provider’s joint filings with the Federal Communications Commission (FCC), which have been obtained by this newspaper, disclose that Cable Bahamas would be forced to pay “a substantial break-up fee” to Orlando-based Summit Broadband if the acquisition was not completed by that date.

The size of the break-up fee was not disclosed in the FCC filings, and it is clear that Cable Bahamas is effectively ‘rattling the sabre’ in a bid to push the FCC to grant a quick approval for the Summit Broadband transaction.

The Bahamian company is also acquiring another Florida-based communications provider, Marco Island Cable and its affiliate, NuVU, with both deals valued at a collective $65 million.

FCC approval appears to only be required for the Summit Broadband purchase, and the filings also disclose that upon completion Cable Bahamas will inject capital into the US company to enable it to finance/complete the build-out of its Orlando-based network.

Again, the amount of capital Cable Bahamas will invest into Summit Broadband post-acquisition was not disclosed. And some shareholders in the BISX-listed company are urging it to be more “transparent” over the purchases, explaining why they are in the best interest of the company they have invested in,.

The October 24, 2012, filing with the FCC, which seeks its approval for Summit Vista, Cable Bahamas’ 100 per cent-owned subsidiary, to take control of Summit Broadband/Orlando Telephone Company, asks the US regulator to ‘fast track’ permission through its “special temporary authority” process.

Cable Bahamas and Summit Broadband argue that by doing this the FCC would be acting in “the public interest” of the latter’s US customers. They want the US regulator to approve consummation of the deal by December 15, 2012.

“While neither of the companies is facing imminent financial failure, Summit Broadband is contractually obligated to consummate the merger on or before December 15, 2012,” the FCC filing said.

“Accordingly, under the terms of the agreement, in the event the plan of merger is not consummated on or before December 15, 2012, Summit Broadband may, in its sole discretion, terminate the agreement and require Cable Bahamas to pay a substantial break-up fee.

“Such an outcome would require Cable Bahamas to incur a substantial financial loss.”

Break-up fees are common in sales agreements related to mergers and acquisitions. They are designed to concentrate the parties minds’ and ensure they are serious, for after a certain date - if one decides to walk away - the contract may require them to pay such compensation to the other side.

In essence, break-up fees are designed to compensate parties in merger transactions for the time and disruption caused if the other side abruptly decides to walk away from the table.

Anthony Butler, Cable Bahamas’ president and chief executive, last night declined to comment on the specific questions Tribune Business had in relation to the break-up fee.

These questions include the size of the break-up fee and Cable Bahamas’ potential exposure; how confident the company was that it would avoid such payment; and why this was included in the agreement.

Mr Butler, though, refused to go into specifics, citing the sensitivity of the regulatory processes in both the FCC and the Bahamas. In this nation, Cable Bahamas’ has to obtain exchange control approval from the Central Bank of the Bahamas (really the Government via the Investments Board/Cabinet).

“The request for regulatory approval has been made both in the Bahamas and the US,” Mr Butler said, “and we are happy with the progress to date.

“The deals are subject to the ongoing regulatory review, and as such we can’t discuss elements of the respective deals beyond what has already been issued.”

Mr Butler also declined to comment on the numbers associated with the proposed capital injection into Summit Broadband by Cable Bahamas.

The FCC filing said that fast tracking approval “will serve the public interest by hastening Cable Bahamas to infuse the necessary capital into Orlando Telephone (Summit) to enable the company to compete effectively in the increasingly competitive marketplace for telecommunications services in central Florida.

“At present, Orlando Telephone Company is deploying a Gigabit broadband access network in central Florida utilising a fibre to the premises architecture. This current network serves campus housing and residential neighbourhoods in Orange and Osceloa counties.

“This capital intensive network deployment will be accelerated by the infusion of capital into the company by Cable Bahamas, and such support will enable Orlando Telephone to continue to upgrade its network, and to offer new and innovative services.”

Translated, it appears that Summit Broadband requires a partner/new owner to inject the necessary capital financing to enable it to complete the roll-out of its network. And that company is Cable Bahamas.

Tribune Business understands that Cable Bahamas is optimistic that the two US deals could see it double its size within four years.

Mr Butler last night added: “It is a fantastic opportunity for Cable Bahamas to widen its footprint. This is a reversal model to the norm where a Bahamian company is investing abroad.

“The opportunities for the company are very promising in the new areas, and we are doing what we have always been minded to do, the company’s expansion beyond the Bahamas.”

Noting that Cable Bahamas was merely seeking to leverage its existing fibre optic cable infrastructure to the US, Mr Butler said: “This is no different from what BTC did back a few years ago, when it explored new opportunities in Haiti. For us, this is expanding our network into the US via a network which we have already invested over $30 million in.”

The FCC filings detailed how the transaction would be structured. A newly-incorporated Florida company, Summit Vista, will merge with and acquire the Orlando-based company.

Summit Vista will be a 100 per cent, wholly-owned subsidiary of Trinity Communications. The latter is owned, in turn, by Cable Bahamas’ 100 per cent-owned subsidiary, Caribbean Crossings.

Both Cable Bahamas and Summit Broadband argued that the FCC should give speedy approval because, following the deal, the company would have “substantially less than 10 per cent” of Florida’s inter-state, interexchange market.

The firms said Cable Bahamas’ “greater financial strength” would enable Summit Broadband to become more competitive, and expand its customer base and services.

Tantalisingly, Summit Broadband’s president is Richard Pardy, the right-hand man of Philip Keeping, Cable Bahamas’ founder. The duo worked together to build out the Bahamian company’s network, laying the foundation for its success today,

Given that Mr Keeping is both Cable Bahamas’ current chairman, and a shareholder/director of Summit Broadband, it appears as if this deal will effectively bring the Keeping/Pardy duo ‘back home’.

Another common director/shareholder of both Cable Bahamas and Summit is Troy D’Arville, the Furniture Plus chief. Both he and Mr Keeping recused themselves from discussions on the US deals, leaving them - and the final decision - to a special Board committee.

Nevertheless, some Cable Bahamas shareholders are already calling for the company to provide more details and transparency to its investors on the US move.

One shareholder, speaking on condition of anonymity, told Tribune Business that Cable Bahamas “has to do a better job of assuring its shareholders” that the deals were in the best interests of the BISX-listed company and its shareholders.

Pointing to the common ownership and directorships between some of the entities involved, the investor added: “They have to reassure shareholders that all of the debt they’re taking on, and these companies they are buying, is in our best interests.”

Tribune Business understands that more information will be provided to shareholders once US and Bahamian regulatory approvals are received, and many institutions will likely be pitched to as part of its preference share issue.

Cable Bahamas already has $111 million in bank and preference share debt on its books, and these transactions will add considerably to that.

And the shareholder source said: “These questions have not been answered. Why does Cable Bahamas think they can do a better job running these companies in the US than all of those people that have been running it, and have experience of cable operations in Canada and North America.

“I don’t think they have done a good job of assuring the shareholders that this is in the truly best interests of Cable Bahamas.

“That may be the case, but they have to hit the nail on the head: Why is it good for Cable Bahamas, and why will it do a better job in running that than the people that started Cable Bahamas?

“There are a lot of Cable Bahamas shareholders whose feathers were somewhat ruffled that Columbus Communications was paid such a hefty price for their 30 per cent. Is this a ‘here we go again’?”