Cogeco Inc. · TSX:CGO
Cogeco — Merger or Acquisition (July 2017)
25 slides from Cogeco's merger presentation, Jul 10, 2017
Slide 1: Acquisition of the MetroCast Cable Systems
ACQUISITION OF THE METROCAST CABLE SYSTEMS July 10, 2017
Slide 2: No Investment Advice and No Reliance
NO INVESTMENT ADVICE AND NO RELIANCE NO INVESTMENT ADVICE This investor presentation is not intended to form the basis of any investment decision. It does not constitute an offer or invitation for the sale or purchase of any securities, businesses and/or assets or any recommendation or commitment by
Slide 3: Forward-Looking Statement
FORWARD-LOOKING STATEMENT This investor presentation contains statements that are or may be forward-looking statements within the meaning of securities laws. All statements other than statements of historical facts in this investor presentation may be forward looking statements. Future outlook and a
Slide 4: Non-Audited Financial Information and Non-IFRS Measures
NON-AUDITED FINANCIAL INFORMATION AND NON-IFRS MEASURES None of the financial information in this presentation has been audited. Financial information related to MetroCast is based on accounting principles generally accepted in the United States ("U.S. GAAP") which differs from International Account
Slide 5: Transaction Overview
TRANSACTION OVERVIEW ACQUISITION BY ATLANTIC BROADBAND (“ABB”) OF ALL CABLE SYSTEMS 1 OWNED BY HARRON COMMUNICATIONS • Harron Communications is a family-owned cable operator operating under the brand name “MetroCast” with 232,761 PSUs(1) • Incumbent provider of Internet, video and telephony services
Slide 6: Acquisition Supports U.S. Cable Growth Strategy
ACQUISITION SUPPORTS U.S. CABLE GROWTH STRATEGY CAPITALIZE ON INCREASED IMPORTANCE AND COMPETITIVE ADVANTAGE 1 OF CABLE’S BROADBAND OFFERING IN THE U.S. MARKET UTILIZE ABB’S BEST-IN-CLASS MANAGEMENT TEAM TO MANAGE A 2 LARGER PLATFORM WITH DIVERSIFIED GEOGRAPHICAL FOOTPRINT 3 GROW IN SMALLER MARKETS
Slide 7: MetroCast Is a Strong Strategic Fit
METROCAST IS A STRONG STRATEGIC FIT OVERVIEW • Adjacent territories without overlap • Protected Tier 2 markets • No corporate headquarters to transfer/integrate • Quality network & plant • Solid and efficient operations • Complementary Call Centers and Network Operations Centers in NH and PA • Commo
Slide 8: Acquisition Rationale
ACQUISITION RATIONALE • Further establishes ABB as a strategic platform in the U.S. with a diversified geographical footprint from Maine to Florida • Adds scale in the American Broadband segment which continues to exhibit steady growth and is Strategic expected to keep generating strong operating ma
Slide 9: MetroCast Overview
METROCAST OVERVIEW • MetroCast is an incumbent provider of video, Internet NETWORK and telephony services in the five states of New Hampshire, Maine, Pennsylvania, Maryland and Virginia • 95% of homes passed are upgraded (860 MHz or • Offers broadband and entertainment services to FTTH) with an aver
Slide 10: MetroCast Benefits from Superior Demographics and a Favorable Competitive Landscape
METROCAST BENEFITS FROM SUPERIOR DEMOGRAPHICS AND A FAVORABLE COMPETITIVE LANDSCAPE ATTRACTIVE DEMOGRAPHICS(1) MetroCast ABB U.S. AVG. • MetroCast’s footprint covers markets with a higher than average income growth and MEDIAN INCOME $59.3K $50.4K $55.2K household formation and lower rates of AVERAGE
Slide 11: Residential Services Growth Opportunity
RESIDENTIAL SERVICES GROWTH OPPORTUNITY • MetroCast's older median age relative to U.S. average and ABB is favorable for both video and telephony increased penetration • Opportunity to take share from satellite with enhanced bundle suite and advanced video platform from TiVo • Potential for increase
Slide 12: Business Services Growth Opportunity
BUSINESS SERVICES GROWTH OPPORTUNITY METROCAST HAS AN UNDERDEVELOPED BUSINESS SERVICES SEGMENT – PARTICULARLY IN HIGH VALUE ENTERPRISE MARKET • ABB will expand product offerings and increase sales focus in this important area MetroCast ABB Industry Peers Number of businesses in 25K 65K footprint Per
Slide 13: ABB's Growth Strategy for MetroCast
ABB’S GROWTH STRATEGY FOR METROCAST • ABB bundle strategy will increase EMPHASIZE PSUs with new and existing customers COMMERCIAL SEGMENT MARKETING & MULTI-PRODUCT DISTRIBUTION SALES FOCUS • Launch Metro- NEW PRODUCT Ethernet and LAUNCHES • Increase customer cloud telephony acquisition service for l
Slide 14: Connecticut Case Study
CONNECTICUT CASE STUDY ABB ACQUIRED METROCAST’S CONNECTICUT SYSTEM IN AUGUST 2015 CUSTOMERS AS A % OF HOMES PASSED • Integrated and selling ABB products within 60 days November 30, 2015 • Major product enhancements including TiVo Internet 41% launch and Internet speeds doubled within 33% 120 days 16
Slide 15: Acquisition Adds Meaningful Scale to Atlantic Broadband
ACQUISITION ADDS MEANINGFUL SCALE TO ATLANTIC BROADBAND ATLANTIC BROADBAND(1) + METROCAST(2) = PRO FORMA 8 states: 11 states: 5 states: Connecticut, Delaware, Florida, Geographical Connecticut, Delaware, Maine, Maryland, New Maine, Maryland, New presence Florida, Maryland, New Hampshire, New York, H
Slide 16: Independent U.S. Cable Capital Structure
INDEPENDENT U.S. CABLE CAPITAL STRUCTURE (US$ IN MILLIONS) Unaudited ATLANTIC BROADBAND(1) + METROCAST(2) = PRO FORMA Revenue $474 $230 $704 Adjusted EBITDA $202 $121 $323 Net indebtedness $613 $1,736(3) Net indebtedness / Adjusted EBITDA 3.0x 5.4x (1) For the twelve months ended February 28, 2017.
Slide 17: Increasing Mix of High Growth U.S. Cable
INCREASING MIX OF HIGH GROWTH U.S. CABLE (CND$ IN MILLIONS) CANADIAN AMERICAN Unaudited BROADBAND AND PRO FORMA BROADBAND COGECO BUSINESS ICT METROCAST(2) COGECO CONSOLIDATED(1) COGECO COGECO ATLANTIC CONSOLIDATED CONNEXION PEER I BROADBAND Revenue $1,281 $295 $621 $2,194 $306 $2,500 Adjusted EBITDA
Slide 18: History of Deleveraging Following Acquisitions
HISTORY OF DELEVERAGING FOLLOWING ACQUISITIONS • Expected consolidated net debt / Adjusted EBITDA of 3.6x at closing with a plan to reduce net leverage = to the low 3x within 18 months • Cogeco is naturally hedged from a free cash flow perspective as US$ EBITDA exposure is mostly offset by interest
Slide 19: Transaction Details
TRANSACTION DETAILS • US$1.4 billion purchase price, including ~US$310 million(1) of tax value Price and consideration • All cash consideration • 9.0x CY2017E Adjusted EBITDA(2) • US$1.7 billion Senior Secured Term Loan B, of which approximately US$585 million is expected to Committed be used to ref
Slide 20: CDPQ's Equity Investment Highlights Value of Cogeco's U.S. Cable Assets
CDPQ’S EQUITY INVESTMENT HIGHLIGHTS VALUE OF COGECO’S U.S. CABLE ASSETS • U.S. cable sector continues to exhibit strong growth • CDPQ’s equity valuation implies that Cogeco’s pro and as a result, U.S. cable companies continue to forma 79% equity interest in Atlantic Broadband at trade at a premium t
Slide 21: Transaction Investment Highlights
TRANSACTION INVESTMENT HIGHLIGHTS ATTRACTIVE MARKETS WITH FRAGMENTED COMPETITION 1 • MetroCast faces wireline triple-play competition in only 5% of its footprint and FTTH competition in 3% of its footprint • Favorable demographics and stickiness toward video products OPPORTUNITY TO INCREASE PENETRAT
Slide 22: Appendices
APPENDICES coGeCO mM v)) ATLANTIC AX mantic « company a Cogeco
Slide 23: Valuation of ABB's Tax Assets
VALUATION OF ABB’S TAX ASSETS • It is estimated that ABB will not pay cash taxes for nearly 5 years, primarily as a result of the amortization of acquired intangible assets and its tax losses carry-forwards (US$ millions) Equity purchase price $1,400 (–) Amount allocated to PP&E (estimated) ($150) I
Slide 24: US$ Debt Reduces Free Cash Flow FX Exposure
US$ DEBT REDUCES FREE CASH FLOW FX EXPOSURE • Cogeco is naturally hedged from a free cash flow perspective as US$ EBITDA exposure is mostly offset by interest expense on U.S. denominated debt and capex ESTIMATED PRO FORMA IMPACT OF A 10% DEPRECIATION OF THE CND$ RELATIVE TO US$ AND GBP IN FY2016(1)
Slide 25: MetroCast Benefits from Superior Demographics
METROCAST BENEFITS FROM SUPERIOR DEMOGRAPHICS • Significant potential for increased Internet penetration and migration towards higher speeds – MetroCast footprint over-indexes on propensity to adopt technology – Higher income profile, greater portion of white collar jobs and lower speed offering by