Cogeco selling Peer 1 data centre business for $720M

Cogeco Communications Inc. says it’s inked a deal to sell its Cogeco Peer 1 cloud services business for $720 million. The data centre business is being sold to affiliates of the Los Angeles-based investment firm Digital Colony, according to a press release Cogeco issued Wednesday. Cogeco CEO Philippe Jetté said the data centre market had changed and consolidated “significantly” since the company initially bought Peer 1 Hosting back in 2013, which came with a pricatag of $526 million at the time. “In this context, we made the decision to focus Cogeco Communications’ resources on our Canadian and American broadband services businesses,” he said in the release. “This transaction will provide greater flexibility to pursue organic investment and acquisition opportunities.” Cogeco said it expects to use a “significant portion” of the net proceeds to repay debt on loans and buy back stock. National Bank analyst Adam Shine characterized the sale in a note as “inevitable,” calling it a “struggling small unit” in the company that was finally sold at a “very good price.” Shine said National Bank was “conservatively” valuing Cogeco Peer 1 at about $400 million. Desjardins’ Maher Yaghi said in a note that he sees it as a “major positive” for the company that will reduce its leverage “back to levels where acquisitions in the U.S. for cable assets are once again on the table.” “We have long advocated for a sale of Peer 1 given the low synergies with the cable business as well as the company’s elevated indebtedness, which limited its ability to undertake an accretive M&A strategy in the U.S.,” he wrote. “Hence, we are not surprised by the announced transaction and believe it will enable the company to make better use of capital.” The company has been struggling with the business ICT segment, which reported last quarter a year-over-year revenue drop of 3.2 per cent to $67.7 million. The company cited increased competition and “pricing pressures.” On the investor call in January, analysts prodded the company about whether it planned to sell the division. Jetté didn’t indicate any sort of acquisition activity and wouldn’t comment on the future, but said Cogeco was keeping “all the options open,” according to a call transcript. That line of question came after Quebecor Inc.’s Videotron announced late last year that it would sell its own data centre business, 4Degrees Colocation, to Vantage Data Centers for $259 million. Shaw Communications Inc. similarly sold its ViaWest data centre business for $2.3 billion in 2017, making almost twice what it paid for when it bought the company back in 2013. Peer 1 has 16 data centres, a fibre network and presence in North America and Europe. Cogeco said Wednesday it will retain “significant” fibre capacity in Toronto and Montreal, and has signed a commercial agreement with Digital Colony aimed at “better supporting their customers and further developing their respective businesses in the future,” according to its news release. The deal is subject to a number of regulatory approvals but is expected to close by end of third quarter this year. Peer 1 would eventually rebrand.

Cogeco selling Peer 1 data centre business for $720M

Brief | February 27, 2019

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Cogeco selling Peer 1 data centre business for $720M

Brief | February 27, 2019

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