Consolidated to Buy SureWest for $340.9M

Consolidated Communications Inc. has struck a deal to acquire SureWest Communications (Nasdaq: SURW) for US$340.9 million in cash and stock, marking a deal that combines two of the nation's Tier 2 service providers. (See Consolidated Snaps Up SureWest.)

Consolidated has agreed to pay $23 per share, a 47 percent premium to SureWest's stock price ($15.59) as of the close on Feb. 3. In conjunction, Morgan Stanley Senior Funding is providing Consolidated with $350 million of committed debt financing, which will be used to refinance SureWest's debt and pay for the cash portion of the purchase price.

Consolidated is looking to acquire SureWest's mix of copper, fiber and hybrid fiber/coax (HFC) systems in the Sacremento, Calif., and Kansas City regions that serve more than 321,700 residential "marketable homes" and 15,700 business customers. SureWest posted third-quarter net income of $643,000, down from $1.4 million year-on-year, on revenues of $63 million, up 3 percent.

Consolidated pipes voice, data and video services primarily to rural pockets of Illinois, Pennsylvania and Texas. It ended the third quarter with 446,426 total "connections," including 109,572 DSL subs and 32,981 IPTV customers.

Consolidated said the combined company would have generated about $620 million in revenues for the fiscal year ended Sep. 30, 2011. It estimates that Consolidated and SureWest, an IPTV pioneer, together will have about 1,775 employees.

Why this matters
The merger won't let Consolidated create larger geographic clusters, but it should help the company achieve greater scale and efficiency for its video and broadband services. Consolidated believes the merger will create $25 million in annual operational savings, and yearly capex savings in the range of $5 million to $10 million by the end of the first year after the deal closes. In the meantime, Consolidated expects to incur merger and integration costs of $20 million to $25 million over the first two years after the deal is sealed.

Monday's merger could signal a new era of consolidation among Tier 2 service providers that are looking to generate more scale amid rising fees for video programming.

For more
Check out some recent headlines about SureWest and Consolidated Communications.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Jeff Baumgartner 12/5/2012 | 5:43:29 PM
re: Consolidated to Buy SureWest for $340.9M

Nothing earth-shattering from the follow up call, but here are some tidbits from it:

-          Consolidated Communications CEO Bob Curry said his company intends to expand its national footprint by looking at other M&A opportunities, "hopefully somewhere near where we already operate."

-          The IPTV middleware situation will stay as-is for the time being. SureWest's been using Microsoft Mediaroom and Consolidated's been with Myrio.  Consolidated execs said it's too early to say if they'll unify one or the other, though they said Surewest's been happy with Mediaroom  so far and that Consolidated has been making some progress with its middleware vendor.

-          They hope to close the deal by third or fourth quarter of 2012.

Jeff Baumgartner 12/5/2012 | 5:43:29 PM
re: Consolidated to Buy SureWest for $340.9M

Just a coincidence, but they are announcing this deal just as Google starts to lay fiber in the KC area, though the Consolidated guys think this could represent an opportunity rather than a new competitor since they might be able to sell services on Google's fiber. JB

paolo.franzoi 12/5/2012 | 5:43:28 PM
re: Consolidated to Buy SureWest for $340.9M


I was thinking about who they might go after next.  Maybe TDS?  There are not that many carriers with 100K+ lines.  Lots of the IOCs are tiny and a rollup would take lots of time and transactions.  Maybe they could buy some properties from Fairpoint?



Jeff Baumgartner 12/5/2012 | 5:43:26 PM
re: Consolidated to Buy SureWest for $340.9M

The premium Consolidated agreed to pay pretty much evaporated in SureWest's stock price Monday, closing at $22.67, up $7.08 or 45.41%.  Consolidated shares were down 27 cents (1.40%) to $18.98. JB



Jeff Baumgartner 12/5/2012 | 5:43:26 PM
re: Consolidated to Buy SureWest for $340.9M

Perhaps they can be choosy here and only target IOCs that are relatively adjacent since there aren't many bigger targets out there that would also be somewhat adjacent to the Surewest/Consolidated properties. JB


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