Consolidated Communications To Go Private In $3.1B Deal

‘We have been operating in a shifting economic environment over the course of this past year, resulting in higher operating costs and a challenging market for attractive financing options. While we are pleased with how we have managed the business despite these headwinds, several factors recently necessitated that we delay our estimated fiber build completion beyond 2026,’ says Consolidated Communications President and CEO Bob Udell.

Consolidated Communications, one of the U.S.’s top 10 fiber providers, has started on the road to becoming a private company with an agreement to be acquired by two large investment companies.

Consolidated Communications Monday said it has entered into a definitive agreement to be acquired by New York-based private equity firm Searchlight Capital Partners and Victoria, British Columbia-based investment company British Columbia Investment Management in an all-cash transaction with an enterprise value of approximately $3.1 billion, including the assumption of debt.

Consolidated Communications provides fiber communications capabilities to consumers, businesses, and wireless and wireline carriers for a wide range of internet, data, phone, security, cloud, and wholesale users.

[Related: Toshiba To Go Private In $15B Deal]

Under the terms of the agreement, the two companies will pay $4.70 per share, which is about a 70-percent premium to its common stock closing price as of April 12, 2023.

Searchlight and BCI in April originally sent a non-binding proposal letter to acquire Consolidated for $4.00 per share.

Searchlight Capital Partners already owns 33.8 percent of Consolidated’s outstanding shares of common stock. It also owns 100 percent of Consolidated’s perpetual preferred stock.

Consolidated, ranked No. 42 on the 2023 CRN Solution Provider 500, declined to provide further information in response to a CRN request, and instead pointed to its press release and SEC filing for more information. However, a Consolidated spokesperson replied via email that the company’s proxy statement will be filed in the comings months, and will provide additional information.

Consolidated, in that SEC Form 8-K filing, wrote there is a limited no-shop policy under which it is open to other acquisition offers. Consolidated would also have to pay a breakup fee of $15.9 million if it cancelled the agreement or accepted another acquisition offer.

Financing of the deal is not expected to be an issue as the two investment companies have already obtained equity financing commitments of $370 million.

Consolidated, in an investor briefing slide deck that was filed with the Form 8-K, wrote that there were several issues the company was facing that made an acquisition by Searchlight and BCI attractive.

These included a more challenging liquidity position than previously expected, accelerating voice revenue declines, slower enterprise growth than expected, capital expenditures well about plans because of supply chain issues and cost increases, lack of enough capital to fund future government partnership funding, increased debt costs because of increased interest rates, and growing build and installation costs.

Consolidated Chairman Robert Currey, in a prepared statement, said the acquisition agreement will bring a significant and certain cash premium to shareholders.

“The Special Committee thoroughly reviewed their proposal, considering the benefits of the transaction against other strategic alternatives available to the Company, including continuing as a publicly-traded company. We also considered capital structure alternatives, analyzing the potential availability, cost and feasibility of injecting additional capital into the business. Following this review, the Special Committee determined this transaction is the best path forward for Consolidated Communications and its shareholders,” Currey said in his statement.

The transaction will enhance Consolidated’s flexibility in extending its fiber expansion strategy, said President and CEO Bob Udell.

“We have been operating in a shifting economic environment over the course of this past year, resulting in higher operating costs and a challenging market for attractive financing options. While we are pleased with how we have managed the business despite these headwinds, several factors recently necessitated that we delay our estimated fiber build completion beyond 2026. As we navigate this environment, we will have increased flexibility as a private company and Searchlight will continue to be an outstanding partner as we advance our transformation to a leading fiber-first provider,” Udell said in his statement.

Consolidated Communications in August reported revenue for its second fiscal quarter 2023, which ended June 30, of $275.2 million, down 7.8 percent year-over-year. The company also reported a net loss of $119.0 million.