The Tribune

By Richard Coulson

For the first time we see a major Bahamian company, actively traded on BISX, spreading its wings to do business abroad. Tomorrow, Cable Bahamas will hold an Extraordinary General Meeting (EGM) to seek shareholder approval for acquiring four privately-owned Florida companies that provide broadband phone, Internet and cable TV service in the Orlando market, as well as communities in the southwest Gulf Coast area. The transaction has the unique advantage that the infrastructure of the target companies is contiguous with Cable Bahamas’ existing fibre-optic network, providing linkage opportunities. Their senior executive is Richard Pardy, formerly Cable Bahamas’ chief operations officer.

A Proxy Statement has been sent to all Cable Bahamas shareholders giving details of the proposal. It explains that the Bahamas Government has granted approval for the deals, subject to a favourable vote by a majority of shareholders, plus the adoption of various provisions relating to the financial structure of the enlarged group. The Government, through the National Insurance Board, owns 22.3 per cent of Cable Bahamas’ 13.6 million outstanding shares and will presumably vote its holding for approval.

The total consideration for the four companies is calculated as $99.65 million. This will be paid partly in cash, partly in Cable Bahamas’ ordinary shares and purchase warrants, partly in preference shares, and partly through the assumption of debt. This will be a substantial transaction for Cable Bahamas, whose shareholders’ equity at year-end 2012 was $94 million. The company’s two bankers have agreed to refinance existing indebtedness with a $135 million senior credit facility, increasing existing leverage.

Upon deal completion, the four Florida companies will be placed into one new holding company, named Summit Vista, which will be wholly owned by Cable Bhaamas.The Proxy Statement includes five-year pro forma financial projections for Cable Bahamas alone, and for the company consolidated with Summit Vista.

These consolidated projections, assuming their reliability, indicate an attractive growth pattern and return on investment. The key figure of EBITDA (earnings before interest, taxes, depreciation and amortisation), is shown at $48.3 million in 2013, rising to $95.7 million in 2017. With EBITDA nearly doubling over the period, the present share price of $10.65 could also double to the $20 range. The share price should not be seriously affected by a modest dilution of 6.8 per cent, resulting from the issue of one million ordinary shares as part of the purchase price.

At the EGM, shareholders will doubtless question chief executive, Anthony Butler, and other directors and management executives, about the business and earnings of the target companies, and how the projections were derived. The Proxy Statement says a Special Committee of the Board has been studying the acquisition since late 2011, and retained the corporate advisory services of RBC’s (Royal Bank of Canada) Mergers & Acquisitions Group to render a fairness opinion, as well as the accounting expertise of Deloitte & Touche (Bahamas). Measures will be taken to defer immediate payment of consideration to two ‘insiders’ in the transaction, Philip Keeping, Cable Bahamas’ chairman, who is also a shareholder in Summit Broadband (one of the companies to be acquired), and Troy d’Arville, a director and shareholder of both Cable Bahamas (having inherited his shares from his late father) and Summit Broadband.

We recommend that shareholders cast their votes to approve this carefully-planned growth opportunity for Cable Bahamas. Service to its Bahamian customers will not be reduced. Not only will it release the company from the straitjacket of the restricted and maturing Bahamian market, but it may provide an example for other companies to invest abroad, provided they can handle the exchange-controls still maintained by our Government. Furthermore, we hope that a run-up in Cable’s share price will stimulate dealing in other companies listed on BISX, a trading platform that has not yet lived up to its potential for developing our capital markets.

NB: For disclosure purposes, the author states that he is a shareholder of Cable Bahamas.