Cogeco expands U.S. biz with MetroCast buy

Cogeco Inc. is again expanding its U.S. footprint, with the announcement Monday that it would purchase the remaining cable assets from Harron Communications LP’s MetroCast. The $1.4-billion US acquisition is being handled under Cogeco’s subsidiary Atlantic Broadband, and involves networks that serve homes and businesses in New Hampshire, Maine, Pennsylvania, Maryland, and Virginia, Cogeco said in a press release. This includes about 120,000 Internet, 76,000 video, 37,000 phone subscribers, the release added. “With this acquisition, we are increasing our customer base in attractive markets adjacent to the ones we currently serve,” Louis Audet, Cogeco president and CEO, said in the release, which noted Atlantic Broadband’s customer base is expected to grow to about 835,000 after the deal closes in January. “Under the guidance of Atlantic Broadband’s best-in-class management team, we are in a unique position to grow our customer base, revenues and profits.” Cogeco previously purchased the Connecticut MetroCast assets for $200 million US in 2015. MetroCast networks in those areas pass 236,000 homes and businesses, have 233,000 subscribers and can generate revenue of $230 million US in 2017, National Bank analyst Adam Shine said in a late Monday note, adding the deal should close January 2018 after regulatory approvals. “After our highly successful acquisition and integration of the MetroCast Connecticut system almost two years ago, we understand first-hand the sizable residential and business growth potential that we can expect with the remaining MetroCast systems,” Richard Shea, president and CEO of Atlantic Broadband, said in the release. “We have a proven integration plan and a track record of successfully migrating our platforms and service offerings.” The deal is in line with Audet’s previously stated aim to prioritize an expansion of the company’s American business over any attempts to enter the Canadian wireless market. Analysts took a positive view of the transaction Monday morning, with Desjardins Capital Markets’ Maher Yaghi saying in a note that it was “a good move to increase the size of the US cable assets by buying a business that has very little FTTH competition and with favourable demographics.” Canaccord Genuity analyst Aravinda Galappatthige said in a Tuesday note that Cogeco is in a favourable competitive position in its new footprint due to factors including low fibre deployment by competitors, with DSL constituting 92 per cent of its footprint, wireline triple-play competition making up only five per cent, and only 41 per cent of its footprint having over 15Mbps internet speeds. Additionally, Cogeco is entering an “underpenetrated market with good demographics,” it benefits from low risk given its experience with the Connecticut acquisition, and the lower population density of its footprint means its lower exposure to fibre competition isn't likely to change, compared to Canada, Barclays Capital analyst Phillip Huang added in a Monday note. However, Huang said Cogeco still faces long-term competition-based challenges north of the border, where there is expansion of telco fibre and a high barrier to entry for wireless. He said Cogeco has to deal with “structural disadvantages in competing against scale players” such as BCE Inc. in the coming years. Yaghi added in a Tuesday note “the Canadian market is not getting any easier for a cable-only provider.” Cogeco will present its 2017 third quarter report on Friday.

Cogeco expands U.S. biz with MetroCast buy

Brief | July 10, 2017

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Cogeco expands U.S. biz with MetroCast buy

Brief | July 10, 2017

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