Cable One Bulks Up With $525.9M Fidelity Buy

Fitting with its focus on non-urban US markets, Cable One is splashing out $525.9 million for Fidelity Communications, a family-owned cable operator that serves about 114,000 residential customers in parts of Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas.

This latest deal expands on a recent acquisition binge by Cable One that included a $735 million deal for NewWave Communications. Speaking on Cable One's Q4 call in February, Cable One SVP and CFO Steven Cochran hinted that the company would be on the prowl for more M&A action. "We'll look for opportunities for strategic fits," he said then.

Expect Cable One, which is in the process of rebranding as "Sparklight," to extend its strategy of de-emphasizing pay-TV in favor of higher-margin broadband services to the newly acquired systems. Cable One ended 2018 with about 600,000 residential data subscribers and roughly 310,000 residential video customers. (See 'Cable' heading toward extinction?)

Fidelity, though, has already developed a next-gen, app-based video service strategy in partnership with MobiTV. The in-home part of the offering supports several TV-connected retail platforms, including Amazon Fire TV devices, several media players running Android TV (Xiaomi's Mi Box and the Nvidia Shield among them), Apple TV boxes and Roku players. Fidelity has also launched video apps for Android and iOS smartphones and tablets, as well as web browsers. Cable One, meanwhile, is no longer investing in its video platform, opting to move forward with a platform that uses TiVo software. How Fidelity's app-based, bring-your-own-device approach to video will play long-term after the acquisition isn't clear.

"Cable One is a post-video cable business," Craig Moffett, analyst with MoffettNathanson, said in a research note issued earlier this year. He noted that the company's margins have remained lofty (broadband ARPU in Q4 2018 was up 9.4%, to $69.90) even in the face of video sub losses and slower revenue growth.

Sullivan, Mo.-based Fidelity will also bring in more business services revenues to Cable One, as Fidelity's network passes some 20,000 businesses in its footprint. Cable One also touted Fidelity's upgraded systems, which are made up of more than 5,100 network plan miles and more than 1,600 fiber route miles.

On the financial side, Fidelity brought in about $45 million in adjusted earnings in Q4 2018. Cable One expects to realize $15 million in estimated annual run-rate cost synergies within three years of closing the deal. They expect to wrap up the deal in Q4 2019.

Fidelity brings a "fantastic geographical, cultural and business fit," Cable One President and CEO Julie Laulis said in a statement.

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— Jeff Baumgartner, Senior Editor, Light Reading