Investment firms want to take Consolidated Communications private

Consolidated Communications this week highlighted an SEC form, stating that two private investment companies — Searchlight Capital Partners and British Columbia Investment Management Corporation (BCI) — have proposed to acquire all the common shares of Consolidated (that they don't already own) for $4.00 per share and take the company private.

The analysts at TD Cowen, led by Gregory Williams, said, “A deal provides Consolidated immediate liquidity, a commitment to fully fund the FTTH build, and importantly out of the public spotlight for a company eventually needing capital and facing legacy operational challenges. We see an approval and no overbids.”

Searchlight already owns about 34.3% of Consolidated’s shares. Cowen said the $4.00 per share offer represents about a 45% premium over the $2.76 share price before the offer.

Searchlight and BCI will not require any debt financing and can therefore move quickly. 

The proposal states that any potential transaction must be subject to the approval and recommendation by a special committee of independent and disinterested directors, advised by independent legal and financial advisors. And the deal must receive approval of the majority of the shareholders other than the Searchlight Group. In other words, the investors want an amicable, not hostile, takeover.

After the non-binding offer was received, Consolidated issued a press release, saying its board intends to establish a special committee consisting of independent directors to review and consider the proposal.

In its fourth quarter 2022 earnings report, Consolidated noted that its fiber build pace had slowed in 2022 compared to 2021. And it said it planned to slow the fiber pace further in 2023 as it works toward a goal of achieving year on year EBITDA and revenue growth in 2024.

The operator ended 2022 with fiber deployments in 8 of the 22 states in its territory and 123,000 fiber connections. It added 60,700 passings in Q4 and 403,000 for the full year, crossing the 1 million passings mark on its way to a goal of 1.6 million or 70% of its footprint. 

In the SEC filing, Searchlight and BCI said if they were to acquire Consolidated they would “invest incremental capital into the company to complete the fiber build-out and fully fund the plan through the company turning free-cash-flow positive.”

Searchlight already owns Ziply Fiber, giving it FTTH expertise.

The TD Cowen analysts said, “By taking the company private, Searchlight/BCI will provide Consolidated with immediate liquidity, ultimately providing much needed funds for the fiber buildout instead of tapping expensive bank/public market debt and/or curtailing fiber builds at a crucial time.”