The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas’ top executive yesterday conceded the $31m drop in the price received for exiting the US was “warranted”, but said: “It’s still a massive return for investors.”

Franklyn Butler, the BISX-listed communications provider’s chief executive, defended the nine percent decline in Summit Broadband’s final purchase price from the initially announced $332.5m as still “higher than anyone expected we would get for this business”.

Speaking to Tribune Business in an exclusive interview after the transaction with Grain Management closed this week, Mr Butler said the $301.5m obtained represented a return on investment that is “probably the highest of any merger and acquisition transaction in this region”.

He added that the final price was equivalent to 15-16 times’ Summit Broadband’s annual operating income (EBITDA) of around $20m, and argued that “nowhere in the world will you get such a return on an investment of this magnitude”.

While there was “no question” that Cable Bahamas would have liked to receive the extra $31m, Mr Butler said the reduction was “justifiable” due to what was uncovered in the lengthy five-month due diligence process Grain undertook on Summit Broadband following the deal’s unveiling last August.

Describing such an adjustment as “normal” for merger and acquisition transactions, the Cable Bahamas chief said it had still received sufficient proceeds to accomplish its key goal of deleveraging a balance sheet burdened by almost $468m in bank and preference share debt at end-September.

He added that selling the Florida subsidiary will also enable the BISX-listed communications to place renewed focus on its Bahamas business units, REV and the Aliv mobile operator, with an emphasis on improving customer service and ensuring the products/services sold locally meet consumer demands.

Mr Butler added that the transaction also represented the first major achievement in the strategy he outlined to investors during Cable Bahamas’ January 2019 annual general meeting (AGM), and will provide the financial platform for it to execute on its Bahamas-centred plans moving forward.

However, he would not be drawn on when Cable Bahamas’ ordinary shareholders can expect a resumption of dividend payments, only saying that there will likely be “more clarity after the next board meeting in February this year”.

“The final closing number after adjustments was $301.5m,” Mr Butler told this newspaper. “We still think it’s an excellent, excellent, excellent EBITDA (earnings before interest, taxation, depreciation and amortisation) multiple of 15-16 times’.

“I still think it’s a fantastic investment and phenomenal result for the Bahamian capital markets. It’s not a big decrease in value. Would I have taken $301.5m? Absolutely. It’s still a massive result in terms of return on investment, and the largest transaction in the Bahamian capital markets. It’s a phenomenal result for all our shareholders who, as you know, at AGMs sometimes questioned our ability to manage outside The Bahamas in the competitive US market.”

Thanking shareholders, some of whom were becoming increasingly concerned over the suspension of dividend payments and three consecutive years of heavy losses, for their “patience”, Mr Butler added: “Obviously we’d have liked to get the other $31m, there’s no question about that, but the reality is I’m confident that Grain are going to realise more value from the business.

“These guys have deeper pockets to expand the business [Summit], and are really going to grow the platform left behind in Florida to make it a larger, better organisation that we left. It really allows us now to focus on The Bahamas business, REV and Aliv. Since the hurricane we’ve really continued to up our game and continued to put more focus on it.”

Mr Butler declined to provide reasons for the reduction in Summit Broadband’s purchase price, saying only: “It was the result of the due diligence process. The due diligence process warranted some very justifiable decreases in value which we thought only fair to the purchaser.”

Due diligence is the process where purchasers, and their legal and financial advisers, conduct in-depth scrutiny on every aspect of a target’s operations and finances to ensure everything is truly as represented by the vendor when the two parties signed their sales agreement.

Grain and its team likely uncovered issues they felt required an adjustment in the purchase price, and Tribune Business understands the Summit Broadband deal’s closing was extended at least once having originally been scheduled to occur by year-end 2019.

However, Mr Butler said this was “normal” in the world of mergers and acquisitions and, addressing shareholders directly, said: “I would ask them: When we announced $332.5m, did they think we would get $301.5m? You have to keep it in context. We set the bar pretty high, but $301.5m was higher than anyone expected we’d ever get for this business.

“An EBITDA multiple of 15-16 times’ is probably the highest of any mergers and acquisitions transaction in this region... They can rest assured that there’s nowhere in the world they would get that level of return on an investment of that size and magnitude with what we have done with Summit Broadband. An extra $100m is incredible by any measure.”

With “just over” $200m invested in its overseas expansion, comprising capital expenditure and the $100m purchase price for the four entities that were ultimately combined to form Summit Broadband, Cable Bahamas is still effectively eyeing a nine-figure profit of around on acquisitions it made as recently as 2013.

Many observers will argue that it had little choice but to sell Summit Broadband as a means to raise cash and restructure its balance sheet, with the latter laden down by $167m in bank debt and $301m in preference shares as at end-September 2019. The purchase price matches almost exactly the preference share principal owed to investors.

Asked Cable Bahamas plans to use the proceeds, Mr Butler replied: “We are going to be working with our bankers in the first instance to look at the best capital structure of the proceeds. As you appreciate, we have a fair amount of bank debt that we will address with the bankers as a matter of priority.

“After that we will be addressing the preference shareholders and ordinary shareholders in the coming days and weeks once we get our hands around the balance of the proceeds. This is a huge transaction for Cable’s future. It deleverages our balance sheet and allows us a lot more flexibility to leverage our market share, both in mobile and fixed services, in the country. This is a significant debt burden we will alleviate with this transaction.”

Cable Bahamas’ main lenders are thought to be Royal Bank of Canada (RBC) and Scotiabank. Mr Butler also pointed out that Cable Bahamas’ expansion took place in a completely different business climate than it currently faces, occurring at a time when it was uncertain whether it would win the battle for a new mobile licence but needed to grow and diversify geographically.

The deal with Grain Management, a private equity firm specialising in the communications industry, thus enables Cable Bahamas to monetise its investment in acquiring, amalgamating and building up its Florida business over a five-and-a-half year period.

The relatively shallow depth of the Bahamian capital markets, and the higher cost of capital compared to other nations, meant Cable Bahamas was not well-placed to meet Summit Broadband’s continuous need for capital investment in its fibre-optic infrastructure.

Ross McDonald, Cable Bahamas’ group chairman, said: “The completion of this sale of Summit Broadband unlocks the value created by the Cable Bahamas group’s management team over the past six years and validates the Board’s decision to be the first Bahamian public company to invest in the US market.”

The sale process was conducted by RBC Capital Markets through its Denver and New York-based offices. TD Securities served as financial advisor to Grain Management in the transaction, Alston & Bird LLP served as legal counsel, and the direct lending team at Deutsche Bank provided debt financing.