Shares of Consolidated Communications(NASDAQ: CNSL) were up 15% as of 12:10 a.m. ET on Monday after the company agreed to be taken private in an all-cash transaction valued at $4.70 per share.
The stock rose sharply this year after Searchlight Capital Partners and British Columbia Management Corporation initially sent Consolidated a buyout proposal in April. After a sharp fall from its previous high, the stock is currently up 15% year to date, but still offers upside between now and the completion of the acquisition.
Why the deal makes sense
Searchlight already held about 34% of the company's stock, but the full ownership of the business will provide a financial cushion to help Consolidated complete its fiber build-out plan, which has yielded good results so far. Over the last year, the company has roughly doubled the number of fiber subscribers.
The private equity firm will be able to invest more capital in Consolidated's business to push it forward with its growth strategy. In the second quarter, the company's total revenue fell 7.8% year over year, but the consumer fiber broadband business posted growth of 58%, with average revenue per subscriber up 5.1%.
Consolidated recently sold its Washington state assets to focus on fiber expansion. However, recent macroeconomic headwinds forced the company to delay the completion of the fiber build-out beyond 2026, which may have weighed on the stock price if not for the buyout offer.
The stock still offers upside
With the stock still trading at a healthy discount to the buyout offer, shareholders could realize a return of 14% by holding shares until the deal is completed. This could be a profitable arbitrage opportunity. The transaction is expected to close by the first quarter of 2025.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
