Cogeco chasing U.S. cable deals flying below radar of big players

As France's Altice NV scoops up Cablevision Systems Corp. for $17.7-billion (U.S.) amid a wave of mega-mergers in the U.S. cable industry, Canada's Cogeco Cable Inc. has its eye on smaller prey.

Cogeco started chasing small cable companies when it bought Quincy, Mass.-based Atlantic Broadband for $1.36-billion in 2012. The move helped boost U.S. revenue to 22 per cent of the total, and Cogeco now leads major Canadian telecommunications companies in foreign sales. Chief executive officer Louis Audet said Cogeco could double that number with more purchases.

"We could build something as big if not bigger than what we have in Canada," Audet said in a Sept. 15 interview in Toronto. "It requires capital, it takes time and we won't do anything stupid, but the opportunities exist to do that."

After growing through small acquisitions for 30 years in Canada, Montreal-based Cogeco ran out of targets and began looking abroad. The company first expanded into Portugal, although it sold those assets at a loss a few months before acquiring Atlantic Broadband. It followed that deal up last month by buying MetroCast Communications of Connecticut LLC for $200-million.

"The reason we're in the U.S. is because there are acquisition opportunities of which there are no longer any meaningful ones in Canada," Mr. Audet said. "There are a lot of smaller companies that we can acquire."

The U.S. cable industry is going through a frenzy of a deals worth more than $90-billion combined, which would reduce the top 10 largest players to just seven companies if completed. Charter Communications Inc. will jump to No. 2 with its purchases of Time Warner Cable Inc. and Bright House for a combined $65-billion, while French billionaire Patrick Drahi's Altice will become No. 4 after buying Cablevision and spending $9.1-billion for a controlling stake in St. Louis-based Suddenlink.

With the MetroCast deal, Atlantic Broadband moved up to No. 12 from No. 13 in the United States, with almost 250,000 cable subscribers in regions including Western Pennsylvania, Miami Beach and South Carolina. By comparison, Cablevision has about 2.6 million in the New York Tri-State area, and Time Warner Cable 10.8 million across the country.

Cogeco's U.S. strategy is in contrast to larger rivals. BCE Inc., Rogers Communications Inc. and Telus Corp. generate their revenue almost exclusively from Canada.

"The U.S. economy is doing a lot better than Canada, and on top of that, the currency exposure is beneficial," Greg MacDonald, a Toronto-based analyst with Macquarie Group Ltd., said in a telephone interview. "That's a major investment theme for a lot of portfolio managers."

The Canadian dollar has fallen 13 per cent in the past year against the greenback to 75 cents. Cogeco sold U.S. debt through Atlantic Broadband to help fund the MetroCast acquisition and could do so again for future acquisitions, chief financial officer Patrice Ouimet said.

The deals activity in the United States has driven up valuations of cable companies around the world. Yet this won't affect Cogeco's targets, which are generally too small to get attention from the industry's biggest players, said Mr. MacDonald, the Macquarie analyst.