SureWest Communications (Nasdaq: SURW) rolled up a 45 percent surge in its share price Monday after it agreed to be acquired by Consolidated Communications (Nasdaq: CNSL) for $340.9 million in cash and stock, closing at $22.67. The deal should close in the third or fourth quarter after customary review.
The deal will give Consolidated a presence in the suburbs of Kansas City, Kan., and in the Sacramento, Calif. area.
The deal brings together two Tier 2 companies with different IPTV middleware solutions. Consolidated is using Siemens Communications subsidiary Myrio for its IPTV delivery-which includes features like client personal video recording, pause live TV, video on demand, on-screen caller ID, favorites and reminders, and Web portal capabilities, SureWest, meanwhile, currently uses Microsoft's (Nasdaq: MSFT) Mediaroom to deliver its product.
Consolidated chief executive Bob Currey, during an investor call following the announcement, said the two platforms would eventually be evaluated.
"SureWest is very happy with the results of their move to Microsoft Mediaroom," he said. "We're in the process of analyzing that; like a lot of integrating opportunities it's a little too early to make that call today. But those will be evaluated."
Currey also said Consolidated has "made some progress with our vendor," adding that those would be "fully vetted before we make changes."
Currey also was asked about the potentially disruptive entry of Goolge (Nasdaq: GOOG), and its planned 1 Gigabit fiber deployment in Kansas City.
"Obviously, we're very aware of the Google announcement and the rumors in the market," he said. "But that's been out there for 18 months to two years and Google has done nothing." Even so, he said, "with what they've announced, there's no overlap to the SureWest territory."
In fact, Currey said, Consolidated sees the potential Google deployment as "an opportunity for us to provide some services to Google if and when they start to move on that territory."
"They've announced some of these things in the past and not done anything," he said. "We see it more as an opportunity."
California-based SureWest operates a mixture of copper and FTTH networks in Sacramento, Calif., and in and around Kansas City, and brings some 130,000 customers, including about 64,900 IPTV subscribers, to Consolidated.
Consolidated's Customer base is in rural Illinois, Texas and Pennsylvania, where it also delivers IPTV to some 33,000 subscribers.
Currey called the deal a "significant step forward to better position the company for growth that "creates a diverse set of revenues and cash flows," and allows Consolidated to further its aggressive broadband penetration plans.
"It gives (us) greater scale," he said, adding that SureWest's larger IPTV initiative will help Consolidated "exploit video capabilities to drive ARPU."
This isn't the first time Consolidated has looked to acquisitions to help it grow. Its 2004 acquisition of Texas-based TXU Communications tripled its size, and it also purchased North Pittsburgh Systems in 2007.
Currey said Consolidated would continue to look at other M&A opportunities.
"We will look for additional acquisitions in the future, hopefully near areas in which we already operate," said Currey.
Consolidated generated $92.5 million in revenue last quarter, and increased its IPTV subscriber numbers of 18 percent. It currently passes some 211,495 IPTV homes and has a penetration rate of homes passed of 16 percent.
"Both Consolidated and SureWest have a long history of delivering the highest quality products and services to its customers," said Steve Oldham, SureWest's president and CEO. "From a customer perspective, the transaction creates scale by combining our proven capabilities in delivering leading edge digital TV and broadband services as a stronger, more competitive communications company. We believe the transaction is in the best interests of our company, our customers, our communities and our shareholders."
This transaction is not subject to any financing conditions. Morgan Stanley Senior Funding provided Consolidated with $350 million of committed debt financing in conjunction with the acquisition. The funds will be used to refinance the debt of SureWest and pay for the cash portion of the purchase price.
For more:
- see this release
- see this Reuters article
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