The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Philip Keeping and Troy d’Arville, the Furniture Plus chief, will have to wait 30 months to be paid for their collective 37 per cent stake in an Orlando communications firm, due to government-imposed conditions on its acquisition by Cable Bahamas.

The BISX-listed communications provider’s proxy form, issued to shareholders in seeking their approval for Cable Bahamas’ $100 million worth of US acquisitions, confirms that the Bahamian government has - after nine long months - finally approved the purchases, but with numerous strings attached.

The proxy statement, seen by Tribune Business, indicates that the Government appears to have been especially concerned about the ‘related party’ issues surrounding Cable Bahamas’ proposed US investments, which will see it acquire four Florida-based communications companies.

These concerns focused on the largest deal, the $54.9 million purchase of Summit Broadband. Mr Keeping and Mr d’Arville hold 25.06 per cent and 12.05 per cent equity stakes, respectively, in the Orlando-based company while simultaneously both sitting on Cable Bahamas’ Board.

As a result, the Government has made its approval conditional on the duo having to wait 30 months to receive compensation for their stakes, with the payout to be “based on performance”.

And the proxy form also reveals how Mr Keeping, as Cable Bahamas’ chairman, loaned the company $5 million in March 2013 to “support” the deals.

That financing, Tribune Business understands, was vital “to keep the deal alive”, with the proxy form indicating Cable Bahamas’ on-loaned these funds to two of its acquisition targets.

Some $1.2 million was extended to Nu Vu Ltd, with another $2.25 million forwarded to Summit Broadband. The documents make clear Mr Keeping’s loan was “essential” to ensuring the US firms extended the deal closing date.

Cable Bahamas shareholders will be asked to approve the collective purchases of Summit Broadband, US Metropolitan Telecom and Marco Island Cable/Nu Vu at an Extraordinary General Meeting (EGM) on July 31.

A ‘thumbs up’ from shareholders is critical, as this is one of the conditions the Government has imposed in return for its approval.

Explaining to shareholders the full extent of the Government’s terms, Cable Bahamas said: “The Government of the Bahamas, through the Ministry of Finance, has stated the following conditions on its approval of the transaction.”

Most notable was: “The payout of ‘related parties’ and ‘insiders’ of [Summit]Broadband is to be based upon performance [at the end of 30 months].

“The projected performance, upon which the payout will be determined, has been delivered to the Government.” Cable Bahamas’ ‘independent’ directors, Franklyn Butler and its chief executive, Anthony Butler, have to agree the terms of the payout.

The proxy form makes clear that ‘related parties’ refers largely to Messrs d’Arville and Keeping, and their Summit Broadband holdings. All other equity holders at that company, and Cable Bahamas’ other three Florida targets, will receive their payments when the deals close.

“The acquisition involves two insider parties: Philip Keeping, who serves as chairman of Cable Bahamas (but owns no shares in Cable Bahamas) has an indirect 25.06 per cent ownership interest in Summit Broadband.

“Troy d’Arville, a Cable Bahamas shareholder and director, has an indirect 15.21 per cent ownership interest in Summit Broadband and also serves on the Board of Directors of Summit Broadband. Two other directors of [Cable Bahamas] indirectly hold non-material interests (less than 2 per cent in the aggregate) in Summit Broadband.”

The Government conditions also make clear that the best method for paying Messrs Keeping and d’Arville, whether it be cash, shares or a combination of the two, will be determined after 30 months.

The Cable Bahamas proxy refers to the Summit Broadband purchase being paid for by “earn outs” - a performance-related term - from the issuance of $5 million ‘in-kind preference shares’, carrying a 6 per cent interest coupon.

Mr Keeping and Mr d’Arville are unlikely to be happy with the delayed compensation for their Summit Broadband stakes, but appear willing to live with it to ensure the Bahamian government backs the purchases.

This is especially so, given that all Cable Bahamas’ Board members with potential ‘conflicts of interest’ recused themselves from the transaction discussions, and were not on the ‘Special Committee’ than handled the deals.

The document also details the nature of the loan extended by Mr Keeping to Cable Bahamas.

“The Board of Directors approved a loan from Mr Keeping in the amount of $5 million to facilitate the interim funding needs of Cable Bahamas to support the acquisition of the target companies,” the proxy form said.

“This loan was required and essential in order to extend the closing dates of the target companies’ acquisition.”

Meanwhile, another government-imposed condition is that while Cable Bahamas can pledge its assets as collateral for loan financing, this has to be “peeled back” over the following 30 months (two-and-a-half).

Tied to this, the Government is requiring Cable Bahamas’ lenders to cap the company’s guarantee at $15 million, once its Florida holding company meets certain metrics.

Summit Vista, which will be the holding company for the US purchases, is required to have a consolidated leverage (debt) ratio “less than or equal to” 2.5 times’ its total debt to operating income ratio.

Summit Vista’s previous 12 month consolidated earnings before interest, taxation, depreciation and amortisation (EBITDA) must match nor equal $25 million, with the company’s “net free cash flow positive for two consecutive quarters”.