Consolidated says fiber build will slow without private equity backing

Consolidated Communications on Monday filed a letter to shareholders, asking them to vote for the company’s proposed acquisition by Searchlight Capital Partners and British Columbia Investment Management Corporation (BCI).

The letter, written by Consolidated’s board of directors, warned that if Consolidated remains a standalone company, it will be unable to fund its future fiber builds at “the pace necessary to remain competitive and continue to grow.”

Specifically, Consolidated “will be forced to significantly slow the pace of [its] upgrade to roughly 45,000-75,000 passings per year,” compared to its average of more than 300,000 annual passings from 2021 to 2023.

The operator has previously stated plans to cover 70% of its footprint with fiber by mid-2026. Consolidated in its letter said it currently reaches around 45% of its base with fiber.

But without private equity backing, Consolidated expects to complete its fiber build by 2029 – three years after its original target.

“Given this delay in our plan, competitors will have additional time to build fiber in certain of our markets ahead of the Company, creating a clear competitive disadvantage for us and an impediment to future growth,” Consolidated wrote.

Searchlight and BCI first proposed to acquire the company in April. Consolidated in October announced it will move forward with the transaction, which is valued at $3.1 billion and includes assumption of the company’s debt.

Consolidated remarked the process of converting its legacy copper network to fiber has been “very capital intensive,” with cumulative capital expenditures totaling around $1.5 billion since 2021, when the operator first began the transition.

The company also cited challenges stemming from “the current operating environment,” such as rising interest and inflation rates, industry-wide declines in voice and access revenue, “strong competition” for broadband subs from “scaled nationwide providers” as well as a “competitive and deflationary commercial and carrier market.”

Consolidated shareholders are scheduled to vote on the acquisition on January 31, 2024. The company’s already seen some investor pushback on the deal.

Wildcat Capital Management, which owns approximately three million shares of Consolidated, wrote a letter on November 3 to the company’s board stating it believes the offer “severely undervalues” Consolidated’s equity.

Instead, Wildcat said Consolidated “merits an enterprise value of approximately $4 billion.”

In response to Wildcat’s proposal, Consolidated’s board said the investor has made “an unrealistic demand for $14.00 per share” and that Wildcat’s perspective “ignore[s] the near-term realities of operational risk, competitive intensity and financing uncertainty” the company faces.