The Shaw Communications sign is seen on their office building in Calgary, Alberta May 3, 2010.© Todd Korol / Reuters
Shaw Communications Inc. is investing further in the U.S. data centre market with a deal by its Denver-based subsidiary ViaWest Inc. to acquire INetU Inc. for $162.5-million (U.S.).
ViaWest said Monday it will buy INetU from BV Investment Partners and other shareholders and expects the deal will close by the end of the year. Allentown, P.A.-based INetU operates data centres in Pennsylvania, Virginia, Washington state, the U.K. and the Netherlands
Cloud computing and data management services aimed at enterprise customers have come to represent an important source of growth for Calgary-based Shaw, which bought ViaWest last year for $1.2-billion and is opening its first Canadian data centre in its hometown, a 40,000-square-foot facility.
In its fourth-quarter earnings report last month, Shaw said the company's consolidated revenue and operating income increased for the quarter and the year thanks largely to the ViaWest acquisition. The business represented $246-million (Canadian) in revenue for the year and accounted for $95-million in operating income.
That's a relatively small part of Shaw's total annual revenue of $5.5-billion and operating income of $2.4-billion, but the company is otherwise counting on price increases in its consumer Internet services to offset the effect of declining subscribers to its home telephone and television products.
"The primary challenge for Shaw is that its business mix is skewed towards flat-to-declining segments, including core cable (telephony, video), satellite and media," Canaccord Genuity analyst Aravinda Galappatthige wrote in a research report Tuesday. "These categories make up over 60 per cent of their revenue mix and serve to drag down the growth profile of the overall business."
"In that context, [the INetU] acquisition, albeit small, clearly makes sense as Shaw endeavours to increase its weight in growth segments, particularly its business services categories. Given the relatively solid balance sheet of the company, we would not be surprised to see further tuck-in acquisitions within this space," Mr. Galappatthige added.
He said Shaw expects "low- to mid-double-digit" revenue growth from INetU, but he expects it will have a neutral impact on free cash flow and earnings per share due to financing costs – ViaWest is financing the deal entirely with its own debt, he said – as well as capital expenditures. He left his "hold" rating and share price target of $27 for Shaw unchanged.