U.S. broadband provider WideOpenWest (WOW!) inked a pair of deals to sell off five service areas for a combined $1.79 billion, a move company executives said could accelerate its investments in greenfield fiber.
WOW!’s move includes two separate transactions: a $1.13 billion deal with Atlantic Broadband covering its Cleveland and Columbus, Ohio markets and a $661 million sale of its Chicago, Illinois; Evansville, Indiana; and Anne Arundel, Maryland service areas to Astound Broadband. The deals are expected to close in the second half of 2021, after which WOW! will continue to serve 14 markets across Alabama, Florida, Georgia, Michigan, South Carolina and Tennessee.
WOW! CEO Teresa Elder said during a call with investors proceeds from the transactions will allow it to reduce debt, ramp edge outs, focus on improving penetration and invest in new greenfield opportunities.
CFO John Rego explained the company has historically focused primarily on edge outs to grow the business and spent roughly $30 million a year on such projects before the Covid-19 pandemic hit.
“This gives us the opportunity to take a different look at edge outs and now greenfields, which is for the IP-based portion of the network, [and] maybe build out areas that aren’t particularly on the periphery of our own network,” he said. “I’m not suggesting we’re going to do 20 times the capex but we are going to take a better view and see if we can deploy that capital to grow quicker.”
WOW! currently has a hybrid fiber coax architecture throughout most of its network. Edler said when looking at greenfield builds, the company chooses the technology that is “most economic and sets us up well for the future.” Looking ahead, she noted “we may be looking at more fiber just because of the economics of it now.”
The company ended Q1 2021 with 859,200 total subscribers, including 823,800 high-speed data (HSD) customers. Absent the markets it is offloading, WOW! said in a press release it would have ended Q1 with approximately 532,000 total subscribers and 506,000 HSD customers.
Implications for others
Elder said the $1.79 billion value of the transactions reflected an “implied combined multiple of 11 times adjusted EBITDA,” adding the total was higher than WOW!’s approximately $1.6 billion market cap as of the close of business on June 29. Rego added the deals were the result of a “robust” sales process which “generated a significant amount of interest from multiple buyers.”
In a note to investors, New Street Research analysts said the multiple WOW! was able to secure bodes well for Frontier Communications. They pointed out it likely got a lower multiple than Frontier might since “WOW! is an overbuilder, facing two additional competitors in their markets.”
They estimated “the WOW! multiple implies a multiple of 14x for a comparable asset in a duopoly market. The opportunity for multiple expansion on Frontier’s fiber asset remains underappreciated by the market.”