After spurning Altice USA’s advances twice, Canadian telecom company Cogeco doubled down on the cable business on Wednesday, with its Cogeco Connexion subsidiary agreeing to buy Quebec operator DERYtelecom for C$405 million.
DERYtelecom is the third largest cable operator in Quebec, offering internet, television and telephone service to about 100,000 customers across the province. According to Cogeco, DERYtelecom reported revenue of about C$105 million and adjusted EBITDA of C$44 million for the fiscal year ended Aug. 31.
The news comes shortly after Cogeco rejected a sweetened $8.4 billion buyout offer from American cable company Altice USA and Canadian telecom giant Rogers Communications. Altice has said it would buy Cogeco’s U.S. cable assets -- Atlantic Broadband -- for $3.9 billion, while Rogers would pay about the same for Cogeco’s Canadian operations. Cogeco’s controlling shareholder, Gestion Audem, rejected the latest offer, as it had rebuffed the earlier bid of $7.8 billion for the company.
In a press release, Cogeco said the deal made sense because DERYtelecom’s operations are similar to its own, and presents an opportunity to use its sales and product expertise to bolster DERYtelecom’s service offerings. Cogeco estimated the deal would present about $3 million in annual run-rate synergies, and will help it expand its rural reach.
“The acquisition of DERYtelecom is a strong strategic fit which will allow Cogeco Connexion to increase its presence in areas that are adjacent to its Quebec footprint and to build on the long history of mutual respect, collaboration and friendship between the two companies,” said Cogeco CEO Philippe Jetté in a press release. “Our proven track-record in the successful integration of regional cable businesses, having acquired five companies in the U.S. and Canada over the past five years alone, demonstrates our commitment to bring superior connectivity to regional and rural communities.”
The transaction represents an acquisition multiple of 7.8 times EBITDA, accounting for the projected synergies and tax benefits.
The purchase price will be financed with a combination of cash on hand and Cogeco’s term revolving facility. The transaction is subject to regulatory approvals under the Competition Act along with other customary closing conditions and is expected to close in the second quarter of fiscal 2021.
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Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.