Cincinnati Bell expands global reach with two acquisitions

Fiber network drives deal with Hawaiian Telcom
Cincinnati Bell reaches new FOX deal.
Posted at 9:13 AM, Jul 10, 2017
and last updated 2017-07-10 15:53:32-04

CINCINNATI - Cincinnati Bell Inc. announced a pair of acquisitions Monday that will add more than 1,300 employees and $1 billion in annual revenue to the company.

It will also provide two new businesses to manage that are about 7,000 miles apart.

Hawaiian Telcom Inc. has agreed to merge with the Cincinnati-based phone company in a deal worth approximately $650 million. At the same time, Cincinnati Bell announced the $201 million purchase of OnX Enterprise Solutions, an IT service provider with operations in North America and the United Kingdom.

“Together, Hawaiian Telcom and OnX bring Cincinnati Bell greater financial and operational scale and established market positions in new geographies,” CEO Leigh Fox said in a press release.

The deals enable Cincinnati Bell to expand its fiber optic network and offer to new customers its expanding fleet of cloud-based services for data and voice communications. At the end of last year, Cincinnati Bell had about 9,600 route miles in its fiber network. That will grow to 14,000 with the Hawaiian Telcom acquisition, which also gives Cincinnati Bell "direct access to the 2.6TB of Trans-Pacific fiber cable capacity linking Asia and the U.S.," the company said in a press release. That "expands Cincinnati Bell's route diversity and gives the combined company exposure to large, data-hungry demographics on both sides of the Pacific."

The companies are planning a statewide expansion of Hawaii's fiber optic network following the merger.

"Cincinnati Bell's track record of success and commitment to investing in the build-out of its regional fiber network in both urban and non-urban areas over the past decade makes it a great partner,” said Hawaiian Telcom CEO Scott Barber. “We look forward to sharing our companies' fiber expertise and enhanced service offerings as we continue to expand our next-generation fiber network throughout the Hawaiian Islands.”

The Hawaiian Telcom acquisition is subject to shareholder and regulatory approval, but Cincinnati Bell told investors this morning that it has a voting agreement with a 23 percent owner of Hawaiian Telcom, which could make it easier to win shareholder support. The cash and stock transaction would make Hawaiian Telcom shareholders a 15 percent owner of the new company. its board will have two representatives from Hawaii. Cincinnati Bell said the deal would have a minimal impact on employment in Hawaii.

Cincinnati Bell said it would achieve $21 million in annual operating synergies within two years of closing both acquisitions.

Cincinnati Bell shares declined nearly 10 percent to $17.50 within a half hour of the opening bell on Monday, but recovered some of that lost ground by noon, when the stock traded at $18, or down 7 percent from Friday’s close. Hawaiian Telecom shares were up more than 20 percent to $29.47. 

In a conference call with analysts, Cincinnati Bell’s CEO was asked whether the Hawaiian acquisition would be the start of “a roll-up platform” in which the combined telecoms buy fiber-optic networks between Cincinnati and Honolulu.

“I think the ability to grow more is possibly out there, but again, I don't know that I would dive into like a full city carve out as an example,” Fox said. “Managing networks really in this day and age really has very little to do with geographies. So, we're good at this. They're good at this. I think there's a lot we can do together, a lot we can learn from one another. What that means for the future, I don't know. As I sit here, I know it makes us, in my mind, more attractive and a better operator.”