Cable One Amends Mega Broadband Strategic Partnership

Rhea-AI Summary

Cable One (NYSE: CABO) has amended its strategic partnership agreement with Mega Broadband Investments Holdings (MBI), providing enhanced flexibility for acquiring full ownership. Cable One currently owns 45% of MBI and paid $250 million to other MBI equity holders, who also received $100 million from new MBI debt.

The amended agreement includes new timing options: Cable One can call the remaining 55% starting Q3 2025, while GTCR's put option is deferred to October 1, 2026. MBI reported approximately $320 million in total revenues for the 12 months ended September 30, 2024, serving about 226,000 customers across 674,000 network passings.

The estimated purchase price for the remaining 55% stake is expected to range between $410-550 million, with MBI's total net indebtedness projected at $845-895 million at the time of full ownership.

Positive

• Enhanced flexibility in timing for full ownership acquisition
• MBI's strong revenue of $320 million for 12 months ended September 30, 2024
• Substantial customer base of 226,000 across 674,000 network passings
• 12% discount available for early closing before October 1, 2026

Negative

• Significant future financial commitment of $410-550 million for remaining stake
• High projected net indebtedness of $845-895 million upon full ownership
• Immediate cash outlay of $250 million for agreement amendment

Insights

M&A Financial Analyst

This strategic amendment significantly reshapes Cable One's acquisition path for MBI, introducing important financial and timing flexibility. The $250 million upfront payment plus $100 million in new MBI debt effectively reduces the future purchase price for the remaining 55% stake, while pushing the potential acquisition timeline to Q4 2026.

The deal's structure is particularly noteworthy - the 12% discount rate for early closing provides an interesting arbitrage opportunity. With MBI's $320 million trailing twelve-month revenue and $410-550 million estimated final purchase price range, the valuation implies a reasonable multiple considering the rural broadband sector's growth prospects. The projected net debt of $845-895 million post-acquisition requires careful monitoring of leverage ratios.

For retail investors, this transaction demonstrates strategic capital allocation - Cable One gains extended flexibility while maintaining eventual control rights, effectively managing both capital structure and timing risk. The rural broadband market's consolidation trend makes this deal's successful execution particularly relevant for the company's long-term growth strategy.

Telecom Industry Specialist

The amended partnership showcases Cable One's calculated approach to rural market expansion through MBI's Vyve Broadband brand. With approximately 226,000 customers across 674,000 passings, MBI's footprint represents significant penetration potential in underserved markets.

The deal's timing aligns with the broader industry trend of rural broadband expansion, supported by federal infrastructure initiatives. MBI's strategic positioning in the Southeast, Northwest and Mid-South markets provides geographical diversification and expansion opportunities in areas with competition.

The flexibility in acquisition timing through 2026 allows Cable One to optimize market conditions and operational integration, while maintaining strategic influence through their current 45% ownership. This structured approach to full ownership reflects a mature understanding of rural broadband market dynamics and the complexities of network integration.

Amended partnership agreement provides enhanced timing flexibility for path to full ownership of MBI

PHOENIX--(BUSINESS WIRE)-- Cable One, Inc. (NYSE: CABO) (“Cable One”) announced today that it has amended the terms of its strategic investment in Mega Broadband Investments Holdings LLC (“MBI”) to provide enhanced timing flexibility for Cable One’s potential acquisition of full ownership of MBI. Cable One currently owns a 45% stake in MBI, and affiliates of GTCR LLC (“GTCR”) and MBI management own the balance of MBI. The amendments provide Cable One with enhanced ability to control the timing for acquiring the 55% interest it does not currently own pursuant to the put right held by GTCR, with any such acquisition to occur no earlier than October 1, 2026 unless Cable One elects to close the transaction at an earlier date.

“Our strategic investment in MBI reflects our commitment to provide rural America with reliable high-speed internet service,” said Julie Laulis, President and CEO of Cable One. “We continue to value MBI for all the reasons that first drew us to them: their commitment to providing leading broadband services in rural markets, their track record of strong growth and impressive potential for future growth, as well as their exceptional team.”

Todd Koetje, CFO of Cable One, said, “We are pleased with the terms provided by the partnership agreement amendments, which we believe will further enhance Cable One’s overall capital structure flexibility, as our net leverage ratio is now expected to peak in the fourth quarter of 2024 following this transaction.”

MBI is a leading provider of broadband services across the Southeast, Northwest and Mid-South United States and offers an extensive range of broadband, fiber connectivity, cable television and voice services for commercial and residential customers under the Vyve Broadband brand. MBI's total revenues for the 12 months ended September 30, 2024 were approximately $320 million, with approximately 226,000 residential and business data customers across a network footprint with approximately 674,000 passings as of September 30, 2024.

Transaction Details

As part of the amended partnership agreement, Cable One paid $250 million to the other MBI equity holders, and those same other equity holders also received the proceeds from $100 million of new MBI debt. The combined $350 million of payments will reduce the purchase price payable by Cable One on a dollar-for-dollar basis for the 55% interest in MBI it does not currently own as described in more detail below. Concurrently, new arrangements were put in place to provide timing flexibility for Cable One’s potential acquisition of full ownership of MBI:

• Cable One has a new option to call the 55% of MBI it does not already own, exercisable starting in the third quarter of 2025;

• GTCR’s existing option to put to Cable One the 55% of MBI it does not already own has been adjusted to defer the closing of any put exercise to no earlier than October 1, 2026 (unless Cable One elects to cause the closing to occur earlier);

• If the closing of a put option exercise or call option exercise occurs prior to October 1, 2026, the purchase price payable by Cable One will be discounted at a rate of 12% for the period from October 1, 2026 to the closing date.

The purchase price payable by Cable One at the closing of a call option exercise or put option exercise will be calculated under a formula based on (i) a multiple of MBI’s adjusted earnings before interest, taxes, depreciation and amortization for the 12-month period ended June 30, 2025 and (ii) MBI’s total net indebtedness (disregarding the impact of the $100 million of new MBI debt described above), less a dollar-for-dollar reduction for both the upfront payment and the proceeds from the new MBI debt received by the other MBI equity holders as part of the amendment.

Based on currently available information, if the closing of a call option exercise or put option exercise occurs on October 1, 2026, Cable One estimates that (i) the purchase price payable by Cable One will range between approximately $410 million and $550 million and (ii) MBI’s total net indebtedness that will be outstanding at the time it becomes wholly-owned by Cable One will be approximately $845 million to $895 million. These estimates are based on MBI’s past performance and current forecasts and are subject to numerous assumptions and risks including, without limitation, factors that could impact MBI’s performance, such as competition, economic conditions, operating performance and other factors referenced below under “Cautionary Statement Regarding Forward-Looking Statements”. If any of those underlying assumptions prove incorrect, or if any of those risks materialize, the actual purchase price payable by Cable One upon a call option exercise or put option exercise and the amount of MBI’s indebtedness outstanding at that time may differ from the estimated amounts described above.

Cravath, Swaine & Moore LLP acted as legal advisor, and Centerview Partners LLC acted as financial advisor to Cable One on the amended partnership transaction.

About Cable One

Cable One, Inc. (NYSE:CABO) is a leading broadband communications provider delivering exceptional service and enabling more than 1 million residential and business customers across 24 states to thrive and stay connected to what matters most. Through Sparklight^® and the associated Cable One family of brands, we're not just shaping the future of connectivity–we're transforming it with a commitment to innovation, reliability and customer experience at our core.

Our robust infrastructure and cutting-edge technology don’t just keep our customers connected; they help drive progress in education, business and everyday life. We’re dedicated to bridging the digital divide, empowering our communities and fostering a more connected world. When our customers choose Cable One, they are choosing a team that is always working for them–one that believes in the relentless pursuit of reliability, because being a trusted neighbor isn’t just what we do–it’s who we are.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify forward-looking statements by the words “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “trend,” “will,” “would” or the negative version of these words or other comparable words. Any statements regarding expectations and opportunities related to MBI, Cable One’s future net leverage ratio, the related put right and call right, the amounts payable upon the exercise of those rights and any other statements that are not historical facts are forward-looking statements. Such forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors include, but are not limited to, the factors described under “Risk Factors” in Cable One’s Amendment No.1 to its Annual Report on Form 10-K/A for the period ended December 31, 2023 and its other filings with the Securities and Exchange Commission, and uncertainties, assumptions and changes in circumstances that may cause Cable One’s and/or MBI’s actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement. Each forward-looking statement contained herein speaks only as of the date of this press release, and Cable One undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise, except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241219790728/en/

Trish Niemann

Vice President, Communications Strategy

patricia.niemann@cableone.biz



Todd Koetje

CFO

investor_relations@cableone.biz

Source: Cable One, Inc.

FAQ

What is the current ownership structure of MBI after Cable One's amendment?

Cable One (CABO) currently owns 45% of MBI, while GTCR affiliates and MBI management own the remaining 55%.

How much did Cable One (CABO) pay in the amended partnership agreement?

Cable One paid $250 million to other MBI equity holders, who also received $100 million from new MBI debt, totaling $350 million in payments.

What is the estimated purchase price for Cable One's acquisition of the remaining MBI stake?

The estimated purchase price ranges between $410 million and $550 million if the closing occurs on October 1, 2026.

When can Cable One (CABO) exercise its call option for the remaining 55% of MBI?

Cable One can exercise its call option starting in the third quarter of 2025.

What are MBI's current operational metrics under Cable One's partnership?

MBI reported total revenues of approximately $320 million for the 12 months ended September 30, 2024, with 226,000 customers across 674,000 network passings.