Cable One (NYSE: CABO) disclosed details on a 58%/42% joint venture transaction, whereby the company will contribute fiber assets from Clearwave Communications (Delta Communications) and subsidiaries of Hargray Communications (Hargray of Georgia and Hargray of Florida) into a new joint venture company, provisionally called NewCo, alongside $320m of aggregate equity capital from private equity firms GTCR, Stephens, and the Pritzker Organization (TPO).
Geographically, the NewCo joint venture will own fiber assets in the states of Illinois, Georgia, and Florida. Additionally, this joint venture transaction excludes Clearwave’s tower business.
Overall, the equity interests of NewCo will ultimately be owned 58.3% by Cable One (majority), 21.2% by GTCR, and less than 10% by each of Stephens, and the Pritzker Organization. Cash contributions to NewCo by GTCR, Stephens, and the Pritzker Organization will fund the company’s growth plan.
NewCo – Fiber Business and Operations
Cable One is contributing Clearwave and Hargray operations to the NewCo joint venture which generate ~3% of its consolidated revenues. As of June 30, 2021, when the relative comparison was made, Cable One generated $401.7m of revenue for Q2 2021, implying NewCo will produce $12.1m on a quarterly basis and $48.2m on an annualized basis.
As a standalone company, NewCo will accelerate its deployment of fiber internet to residents and businesses with new and existing market build-outs. Through economies of scale, the company intends to expand its offerings and services to a broader customer base, which includes providing connectivity to unserved and underserved areas.
Below is background and detail on the fiber assets of Clearwave and Hargray that Cable One is contributing to NewCo.
Clearwave Communications – Illinois
In January 2019, Cable One acquired Clearwave Communications, an enterprise fiber provider, from Stephens Capital Partners for $357m. Clearwave owns and operates a high-capacity metro fiber network offering regional coverage in 30+ counties in Southern Illinois.
Presently, Clearwave has 2.9k fiber route miles and 187k+ fiber strand miles of metro fiber infrastructure. Indeed, this represents an average strand count of 65 strands per route mile.
Through its fiber network, Clearwave provides Internet access services and telecommunications services to carriers and business customers. Specifically, the company’s enterprise fiber network connects to 3.6k on-net businesses, towers, and data centers. This includes 450+ fiber-to-the-tower (FTTH) contracts.
At the time of Cable One’s acquisition, Clearwave had 1.4k commercial fiber customers and a 10% commercial market share. For example, Clearwave served 250+ K-12 & universities, 175+ banking customers, 150+ doctors’ offices, 75+ government buildings, and 50+ hospitals.
Hargray Communications – Georgia and Florida
In May 2021, Cable One acquired the remaining ~85% equity interest in Hargray Communications that it did not already own at an implied $2.2bn total enterprise value. Specifically, the company purchased Hargray from the Pritzker Organization (TPO), Stephens Capital Partners, Redwood Capital Investments, and WaveDivision Capital.
Importantly, only Hargray Communications’ subsidiaries Hargray of Georgia and Hargray of Florida are being contributed by Cable One into NewCo. Overall, Hargray of Georgia and Hargray of Florida are both cable operators and competitive local exchange carriers (CLECs) providing voice, video, and broadband Internet access services in Georgia and Florida, respectively.
Presently, Hargray Communications has 7.0k+ fiber route miles, in 36 markets, primarily in Georgia. Additionally, Hargray’s fiber network connects to 10k+ on-net buildings and offers fiber-to-the-tower (FTTH) at 400+ locations.
Management – NewCo
Michael Gottdenker, the former Chairman and CEO of Hargray Communications will serve as Executive Chairman of NewCo. While David Armistead, former Senior Vice President at Hargray Communications, will serve as CEO of the standalone company.
NewCo – Joint Venture Partners – Cable One, GTCR, Stephens, Pritzker
Below are details of Cable One’s NewCo joint venture partners and their various collaborations with the company through prior transactions:
- GTCR: investing in NewCo through its newly-formed GTCR Strategic Growth Fund I, a vehicle targeting $1.5bn in capital commitments. Separately, Cable One owns a 45% minority equity interest in Mega Broadband alongside GTCR
- Stephens Capital Partners: private equity arm of Stephens Inc. Previously, Cable One acquired Clearwave Communications from Stephens. Also, Cable One currently owns a 40% minority equity interest in Wisper, a wireless internet service provider (WISP), alongside Stephens
- Pritzker Organization: financial and investment advisor to certain Pritzker family business interests (e.g., Hyatt Hotels). Additionally, Cable One acquired Hargray Communications from the Pritzker Organization
Transaction Advisors – Cable One, Joint Venture Partners
Cable One’s financial advisor was Bank Street Group. Additionally, Cable One’s legal advisors were Cravath, Swaine & Moore and Cahill Gordon & Reindel.
The joint venture partners’ legal advisors were Kirkland & Ellis, Davis Polk & Wardwell, and Covington & Burling.