Louis Audet says it’s time to move on.
The president and chief executive officer of Cogeco Cable Inc. would prefer that shareholders forget about his company’s failed attempt to crack the Portuguese market and focus instead on what he says are the golden growth opportunities closer to home.
Even as the share prices of Montreal-based Cogeco Cable and parent Cogeco Inc. sank on the Toronto Stock Exchange over investor concerns that his surprise $1.36-billion (U.S.) bet on U.S. cable provider Atlantic Broadband is just too risky, Mr. Audet said the acquisition provides an ideal platform on which to build a profitable presence in the United States.
“I’m disappointed that [the stock-price decline] is happening. Drawing a parallel between Portugal and the United States is a bit unfair,” Mr. Audet said in an interview Wednesday after the agreement to buy Atlantic – Cogeco’s first foray into the U.S. – was announced.
The U.S. is “familiar territory,” he said. And it’s “still the most buoyant economy in the world.”
The assets being purchased – clusters in western Pennsylvania, Maryland and Delaware, South Caroline and Miami Beach – are similar to the cable company’s Quebec and Ontario operations in that they are for the most part suburban or rural, Mr. Audet said.
“The social makeup, the culture, the infrastructure, the laws look a lot like what we already have,” he said.
The market is also highly fragmented and Atlantic offers lots of room to grow, especially in telephony and high-speed data, he added.
He didn’t mention that Canada’s two largest cable companies, Rogers Communications Inc. and Shaw Communications Inc., withdrew from the U.S. after attempting to make inroads several years ago.
Also Wednesday, DBRS Ltd. placed Cogeco Cable’s senior secured debt rating of triple-B (low) under review with negative implications, citing concerns about the firm’s “ability to execute and compete effectively in a new market with characteristics that differ significantly from the company’s core operating regions.”
The rating agency noted that the acquisition will boost Cogeco Cable’s pro forma debt-to-EBITDA ratio to about 3.1 times, from 1.74.
Atlantic is the 14th-largest cable operator in the U.S., with about 252,000 basic cable customers.
Cogeco, Canada’s fourth-largest cable company, is buying Atlantic from private equity firms ABRY Partners and Oak Hill Capital Partners.
Cogeco says it plans to finance the deal with a combination of cash, a $550-million draw-down on its revolving credit facility and $660-million of non-recourse debt financing at Atlantic, based in Quincy, Mass., outside Boston.
Earlier this year, Cogeco sold its struggling Portuguese unit, Cabovisao, for the equivalent of $59.3-million (Canadian), a fraction of the $660-million it paid for the company in 2006.
Many investors and observers also believe that Cogeco is more prey than predator, with larger rival Rogers – owner of 32 per cent of Cogeco’s outstanding shares – a likely candidate to take over the company.
“Despite the [earnings-per-share] and [cash-flow-per-share] accretion and growth opportunity, we see a higher risk profile to the stock,” RBC Dominion Securities analyst Drew McReynolds said in a research note.
Mr. Reynolds cited increased execution risk for this first step in the U.S., the distraction the U.S. market will be away from dealing with competition in Canada as well as growth opportunities here, and the higher debt taken on.