The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas is expecting to receive Bahamian government approval for its $89 million worth of US acquisitions within the next 30 days, Tribune Business can reveal.

The disclosure was contained in the BISX-listed communications provider’s application to US regulators for a one-month extension of ‘fast track’ authority to consummate one of those deals, the purchase of Orlando-based Summit Broadband.

The Federal Communications Commission (FCC) application, which has been obtained by Tribune Business, said the ‘fast track’ extension was required due to the continued wait for Bahamian government approval and because US regulators had yet to ratify another of Cable Bahamas’ three US purchases.

That deal is the BISX-listed company’s $24 million purchase of US Metropolitan Telecom, a communications infrastructure provider that owns a fibre-optic ring connecting northern and central Florida

The FCC filing reveals that the strategy had been for Cable Bahamas and its US affiliate, Summit Vista, to close the acquisitions of both Summit Broadband and US Metropolitan Telecom simultaneously.

That, though, was prevented by the US government’s requirement that all foreign purchasers of communications infrastructure providers, such as US Metropolitan Telecom, undergo rigorous due diligence to ensure they are not a ‘national security’ risk.

The FCC filing reveals that Cable Bahamas is currently in the midst of this process, undergoing evaluation by the likes of the US Department of Justice and Homeland Security. Those agencies submitted questions to Cable Bahamas and its acquisition targets on December 7, 2012, and the BISX-listed company replied five days later.

As a result of these delays on both sides of the Florida straits, Cable Bahamas and Summit Broadband said they had agreed to extend the deadline for closing their deal from December 15, 2012, to February 28, 2013.

But, while Summit Broadband waived the condition that Cable Bahamas pay “a substantial break-up fee” if the deal was not closed by December 15, that risk remains in play if the purchase is not now closed by month’s end.

The FCC filing also revealed that a ‘fast track’ extension would “hasten Cable Bahamas” to inject capital into Summit Broadband, which was vital to both the latter’s competitiveness and the build-out of its fibre-optic network infrastructure.

Again, no details or figures on the supposed ‘break up fee’ or ‘capital injection’ were provided in the FCC filing, which was signed by Cable Bahamas chief executive Anthony Butler, and his Summit Broadband counterpart, former senior Cable Bahamas executive, Richard Pardy.

The continued absence of any details regarding the US transactions may cause some Cable Bahamas shareholders further disquiet, with several having previously been vocal about the lack of transparency surrounding the company’s Florida expansion.

Mr Butler was ‘off the island’ and unavailable for comment, while Barry Williams, Cable Bahamas’ senior vice-president of finance, referred Tribune Business back to Mr Butler.

Nevertheless, Cable Bahamas and Summit Broadband argued in their FCC filing that granting a one-month ‘fast track’ extension - known as ‘special temporary authority’ - to end-February 2013 would “serve the public interest”.

Explaining why they chose not to conclude their original deal by December 15, 2012, the two sides said: “First, under the terms of the agreement and plan of merger, the parties contemplated that Summit Vista would acquire control of US Metropolitan Telecom concurrently with the proposed merger.

“Since US Metropolitan Telecom had no special temporary authority of its own, and the executive branch agencies [of the US government] were reviewing both the Orlando Telephone and US Metropolitan Telecom applications concurrently, the separate consummation of the Orlando Telephone transaction was not feasible.

“Secondly, as at December 15, 2012, the parties were still awaiting prior regulatory approval from the Government of the Bahamas, which exercises jurisdiction over Cable Bahamas, Summit Vista’s corporate parent.”

Fast forward to February 2013, and the FCC filing, dated January 22, said Summit Broadband and Cable Bahamas had agreed to extend the acquisition closing deadline until February 28, 2013.

While the terms had been modified to permit closing while the US Metropolitan Telecom purchase was outstanding, the FCC filing disclosed that Cable Bahamas was still exposed to “a substantial reverse termination fee if the transaction is not consummated”.

“At the same time, while the Government of the Bahamas has not yet approved the proposed transactions, based on discussions with government officials, Cable Bahamas expects to receive such approval within the next 30 days,” the FCC filing said, indicating this was another factor behind the planned February 28 deal closing.

“The parties seek an extension of their special temporary authority to enable them to consummate their planned merger immediately after they have received requisite regulatory approval from the Government of the Bahamas,” it added, stating that Cable Bahamas expected to have US government and FCC approvals before those from Nassau.

The FCC filing exposes the difficulties faced by Bahamian companies in obtaining timely approvals, especially in multi-jurisdictional transactions.

When it announced the deals - Summit Broadband and Marco Island Cable/NuVu in October, US Metropolitan Telecom in November - Cable Bahamas had been confident of getting all the necessary approvals, both Bahamian and US, by year-end 2012.

That, of course, has not happened, pushing back related initiatives, such as Cable Bahamas’ planned $40 million preference share issue to part-finance the deals, into 2013.

On the Bahamian side, the company needs exchange control approval from the Central Bank of the Bahamas to facilitate the foreign currency outflows necessary to consummate its purchases.

Ultimately, though, the decision rests with Perry Christie’s Cabinet and the Investments Board, the latter often functioning as a Cabinet committee or sub-committee.

In a further prod to the FCC, the filing said US consumers’ interest would be served if ‘fast track’ authority was extended, as it would “hasten Cable Bahamas to infuse the necessary capital into Orlando Telephone [Summit Broadband] to enable the company to compete effectively in the increasingly competitive marketplace for telecommunications services in central Florida”.

Summit Broadband’s network is a fibre-to-the-premises model serving campus and residential neighbourhoods around Orlando.

“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,” the FCC filing added.