Cogeco Communications inked the biggest acquisition in its 60-year history on Monday with a $1.4-billion deal to buy the MetroCast cable systems and expand its U.S. presence.
Cogeco CEO Louis Audet said he sees growth opportunities that are double what is available in Canada by increasing the number of TV, internet and phone services to each customer.
The Montreal-based company (TSX:CCA) will make the acquisition through its Atlantic Broadband subsidiary, which signed a definitive purchase agreement with Harron Communications LP, a family business.
Under the agreement, Cogeco said the Caisse de depot pension fund will provide US$315 million in return for a 21 per cent equity stake in Atlantic Broadband's holding company.
The deal, which follows Cogeco's acquisition of MetroCast's network in Connecticut for US$200 million in 2015, will expand Atlantic Broadband's presence to a total of 11 states.
Audet said MetroCast is present in smaller communities where competition is fragmented and customers have higher average incomes than the U.S. average and are more likely to adopt technology than Atlantic Broadband customers and the U.S. overall.
"So there is interesting growth and that's what among other things interested the Caisse de depot et placements which are joining us in this development of the American market," he said in an interview.
Cogeco's annual U.S. revenues are expected to increase by 33 per cent to US$704 million, while its consolidated revenues will reach C$2.5 billion.
Analyst Drew McReynolds of RBC Dominion Securities said he views the transaction as "neutral" because the premium paid for MetroCast will be offset by growth, operational savings and the Caisse's investment.
"Strategically, the transaction fits with the company's long-stated strategy of U.S. cable expansion via tuck-in acquisitions and thus is in line with our expectations," McReynolds said in a note for clients.
Analyst Maher Yaghi of Desjardins Capital Markets said there is potential growth by increasing the penetration of services, as Cogeco has done in past deals.
"Overall, we see this transaction as a good move to increase the size of the U.S. cable assets by buying a business that has very little fibre-to-the-home competition and with favourable demographics," he wrote in a report.
Audet said the company will focus on reducing its debt over 18 months before looking for other acquisition opportunities.
The deal is expected to close in January subject to regulatory approvals.