The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas chief executive yesterday hailed the $332.5m sale of the company’s US interests as “the biggest single transaction” by any Bahamian publicly traded company.

Franklyn Butler told Tribune Business that the “fantastic deal” involving Summit Broadband will “unlock real value” for Cable Bahamas shareholders, with the purchase price almost three-and-a-half times what it paid to enter the Florida market less than six years ago.

Arguing that such an investment return would have been near-impossible to achieve in The Bahamas, Mr Butler told this newspaper in an exclusive interview that the BISX-listed communications provider had “delivered on the promises” made to investors and shown that they were not “pie in the sky”.

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, the BISX-listed communications provider is effectively eyeing a nine-figure profit between $100m-$130m on the deal.

The Summit Broadband sale to Grain Management, a US-based private equity firm specialising in the communications industry, will effectively give Cable Bahamas a financial “war chest” with which to secure its future and lay the platform for further growth and development once the deal closes in the 2019 fourth quarter.

Mr Butler said the US exit would both “recalibrate” Cable Bahamas’ business and “recapitalise the balance sheet”, although he declined to be drawn on precisely how it will employ its newly-acquired liquidity. He would only say the company has multiple “options” for how it will use the sales proceeds.

One such “option” will almost certainly be paying down the group’s long-term debt, which consisted of $286.306m in preference shares and $155.861m in bank debt at end-March 2019. Other potential uses include further investment in Cable Bahamas’ local TV, Internet and fixed-line businesses, as well as Aliv, plus further acquisition/expansion opportunities if they arise.

Mr Butler confirmed the end of its US adventure would benefit Bahamian consumers by enabling the BISX-listed provider to place more emphasis and focus on its local operations, thereby improving both products and services.

Asserting that Cable Bahamas had not been pressured into the sale by its lenders, Mr Butler told Tribune Business that “the numbers speak for themselves” - implying that the deal was a ‘no brainer’ given both the magnitude of the purchase price and return on investment, together with the group’s current position and desired future direction.

“My message would be: The wait was worth it,” Mr Butler replied, when asked what he would tell shareholders of the deal, “and we are excited to deliver on the promises and to unlock the value we communicated to them at the annual shareholders’ meeting.

“This is no longer pie in the sky. We’ve unlocked real value, and have real dollars and cents to show why we made the decisions we did over the last five to six years.”

The sales agreement with Grain Management, which was signed on Friday, enables Cable Bahamas to monetise its investment in acquiring, amalgamating and building up its Florida business over a five-and-a-half year period.

Cable Bahamas has come under increasing pressure from some shareholders, especially small retail investors, over the suspension of dividend payments and two consecutive years of $50m-plus comprehensive losses.

Besides the loss of investment returns and scale of the “red ink” over the past four financial years, shareholders had also started to fret over the $442m in long-term debt that the company was carrying on its balance sheet at end-March 2019.

Viewing the BISX-listed communications provider as over-leveraged, there was a growing feeling that the company’s expansion had been over-ambitious and too fast, with the capital intensive needs of both Aliv and the Florida operations a continuing obstacle to Cable Bahamas’ return to profitability.

These concerns had resulted in Cable Bahamas’ share price falling steadily to the $2.18 at which it closed on Friday, giving the communications provider a market capitalisation of just under $96m.

Debt servicing and interest payments on Cable Bahamas’ bank debt and preference shares amounted to just over $25m for the nine months to end-March 2019. That sum will likely be cut once the Summit Broadband sales proceeds are used to pay down debt principal, while the asset depreciation and amortisation associated with the Florida network and acquisition will also be removed from the balance sheet.

The exact impacts to Cable Bahamas’ bottom line from this are unclear, and Mr Butler did not give specifics on this or when the company was likely to return to profitability or resume dividend payments when asked.

“Things will only continue to get better,” he said. “I think we’ve delivered a reward for the associated risk. Our shareholders will be the ultimate judge of that.”

Mr Butler told Tribune Business that 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.

Confirming that this was a factor behind the sale, he explained: “We thought the timing was now. The reality is to continue to grow that business will continue to require capital as there are so many opportunities that exist in the Florida market. We were not positioned to raise the capital to serve the business to unlock further value on the table.”

Mr Butler said Cable Bahamas initiated the process for Summit Broadband’s sale in March this year, selecting RBC Capital Markets in New York and Denver as its financial advisers. Some 61 potential purchasers were approached, with 30 signing non-disclosure agreements (NDAs).

Nine bids were received in the opening round, with the field reduced to seven in the second round. Grain Management was selected as the preferred bidder in early August, and the two parties subsequently signed an exclusivity agreement.

“I think it’s a fantastic deal,” Mr Butler said. “When you think about transaction multiples in the Bahamian context, the multiple we got in this business is fantastic. I don’t want to get into what the multiples were, but ask yourself: Where could you put $100m and get three-and-a-half times back in five to six years? Then ask yourself: Where could you do that in The Bahamas?

“This transaction, which represents one-third of our business, is equivalent to three-quarters of the market capitalisation of an institution like Commonwealth Bank. I suspect this is the largest single transaction of any Bahamian-listed entity, period. You really have to set the context in people’s minds of the size and scale of this transaction.

“This is great news. I don’t want to over-sell it, but I don’t want to under-sell what we’ve been able to accomplish with this transaction. It’s a reminder of what Bahamians can do. A year ago, two years ago, six months ago, no one would have envisioned us ever collecting our money back from Florida, let alone triple the amount we paid for the business.”

Mr Butler rejected any suggestion that Cable Bahamas had been pressured into the Summit Broadband sale by its lenders, replying “absolutely not, absolutely not” when the question was raised by this newspaper.

“Our bankers had earlier this year provided additional capacity to our syndicate to support Aliv and keep growing our business,” he added. “This was never an issue pushed by our bank syndicate (Royal Bank of Canada and Scotiabank).

Besides the benefits to Cable Bahamas and its shareholders, Mr Butler said there would also be advantages for Bahamian consumers. “The benefits will be more focus,” he added. “More focus on The Bahamas and the Bahamian operations.

“We have a leadership position in fixed-line and have made significant strides in the mobile marketplace. We are going to be even more focused on market share and upgrading infrastructure to better serve customers in all areas of our business.

“We have options, and options to chart the course we want that will ultimately be in the best interests of our shareholders, employees and the consumers. We will continue to look for value that we can accrue to the Bahamian shareholders and participants of the Bahamian capital markets.”

Cable Bahamas expanded into Florida in 2013 with the purchases of Summit Broadband, US Metropolitan Telecom, Marco Island Cable and NuVu. The latter three were amalgamated into the former.

The BISX-listed communications provider admitted at the time that the move represented a “hedging of the bets” due to the uncertainty over the timing of mobile liberalisation in The Bahamas and whether it would win that battle.

It saw Florida as an available growth opportunity, given the maturity of the Bahamian communications market as it existed then, and took it. The expansion was also viewed then as minimal risk because Summit Broadband was run by Richard Pardy, who had overseen the build-out of Cable Bahamas’ network in the 1990s.