Cogeco's U.S. subsidiary buying broadband system serving two Ohio cities

The French version of the COGECO website is seen in Montreal on Wednesday, September 2, 2020. THE CANADIAN PRESS/Paul Chiasson

Republished June 30, 2021 - 9:37 AM

Original Publication Date June 30, 2021 - 7:36 AM

TORONTO - Cogeco Communications Inc.'s main U.S. subsidiary has signed a deal to buy a broadband system in Ohio from WideOpenWest Inc. for US$1.125 billion, the companies said Wednesday.

Cogeco, which offers internet, television and telephone services in both Canada and the United States, said the deal will be a complementary addition to Atlantic Broadband's operations in 11 eastern states.

The WOW Ohio system serves about 196,000 internet, 61,000 video and 35,000 telephone customers in Cleveland and Columbus, Ohio.

Atlantic Broadband president Frank van der Post said he expects WOW Ohio will be able to grow its customer base with help from Cogeco's expertise and investment.

"I think that with the investments we will be making in the network … we will be able to increase our penetration," van der Post told analysts on a conference call Wednesday.

He said the WOW Ohio system is very close to Atlantic Broadband's system in Pennsylvania. The two systems would be integrated and then the Ohio system's capacity would be upgraded.

"So, over a two-year period, we're looking to invest about US$82 million to upgrade and integrate the network," van der Post said.

The deal will be financed through US$900 million in secured debt as well as available cash on hand.

Desjardins Capital Markets analyst Jerome Dubreuil wrote in a note to clients that the price for WOW Ohio is high relative to other acquisitions that Cogeco has made — such as the 2017 purchase of MetroCast by Atlantic Broadband.

"However, we note that U.S. cable multiples have generally increased in the last few years due to the strong demand for broadband products and the increased interest from private equity funds in the sector," Dubreuil wrote.

He added that the higher price for WOW Ohio was reasonable, given market conditions but Cogeco may need time to reap the value of its investment.

Analyst Drew McReynolds of RBC Capital Markets wrote the transaction is "fully consistent with Cogeco's long-standing objective to continue to grow by acquisition in the U.S. cable market."

Montreal-based Cogeco, which also owns broadband internet and television systems in Ontario and Quebec, was itself the target of a hostile takeover attempt last year.

U.S. cable company Altice USA Inc. unsuccessfully tried to buy all of Cogeco in partnership with Toronto-based Rogers Communications Inc., which would have bought the Canadian operations.

Altice's offer, eventually worth about C$11.1 billion, expired in November after it was rejected by Cogeco's founding family, which has voting control of Cogeco Inc., the parent of Cogeco Communications Inc.

Cogeco Communications shares increased $4.83 or 4.2 per cent at $119.94 in late morning trading on the Toronto Stock Exchange.

This report by The Canadian Press was first published June 30, 2021.

Companies in this story: (TSX:CCA, TSX:CGO, TSX:RCI.B)