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WOW! received an unsolicited offer to be taken private by two private equity firms
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The offer could foreshadow more consolidation in the tier 2 and tier 3 cable ecosystem
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The cable competitive landscape is drastically shifting with competition from fixed wireless access and fiber-to-the-home
The private equity companies DigitalBridge and Crestview submitted an unsolicited offer to purchase the cable company WideOpenWest (WOW!). The move is the latest by a PE firm to snap up broadband assets and could be a sign of more activity to come.
The investment companies are offering to purchase all the outstanding shares of WOW! that Crestview does not already own for $4.80 per share in cash. That would value the company at about $400 million.
A May 2 letter from DigitalBridge to the WOW! board of directors said the $4.80 share price represents a 32% premium over WOW’s closing price as of May 1.
The WOW! board of directors said it will establish a special committee of independent directors to evaluate the proposal.
The WOW! network passes nearly 2 million residential, business and wholesale consumers. It provides services in 16 markets, primarily in the Midwest and Southeast, including Michigan, Alabama, Tennessee, South Carolina, Georgia and Florida, including the new all-fiber networks in Central Florida and Greenville County, South Carolina.
Cable’s troubles
WOW! has been struggling the past couple of years. A year ago, the company’s stock traded as high as $22.50, valuing it at about $1.9 billion. But it’s been on a steady decline as it’s bled subscribers.
As of year-end 2023, WOW! reported total subscribers of 504,100, a decrease of 26,500 compared to the previous year, and down 13,300 from the previous quarter.
WOW! isn’t the only cable company bleeding subs. The big boys Comcast and Charter are also seeing subscriber declines.
For the first quarter 2024, Comcast lost 65,000 broadband subscribers, and that followed the loss of 34,000 subs in the fourth quarter of 2023.
Similarly, Charter lost 72,000 internet customers in Q1 2024, following a loss of 61,000 broadband subs in Q4 2023.
The only cable operator to add subscribers so far in 2024 has been Cable One. The company added 6,900 internet subs in its first quarter, but its residential data revenues decreased $6.9 million or 2.8% year-over-year.
TD Cowen analysts wrote that Cable One seems to be “hunting downstream,” trying to gain subscribers in the lower-end of the market, which sacrifices average revenue per user (ARPU).
The Cowen analysts also said that Cable One had previously targeted higher-end customers within its mostly rural footprint. However, the competitive landscape for cable is drastically shifting with competition from fixed wireless access and fiber-to-the-home.
“The cable environment remains very challenging, and any ‘price vs. subs’ strategy is less ideal,” wrote TD Cowen.
Consolidation is coming
Bill Major, CEO of the fiber operator FiberLight, recently told Fierce Network that he expects quite a bit of consolidation in the broadband market in the next few years, especially among regional players.
FiberLight, which is owned by the private equity firm Morrison, considers its main competitors to be the incumbent LEC and cable operators in its markets.
FiberLight is keeping an eye out for possible acquisitions, especially startup fiber companies that don’t know what they’re doing.
“I know of a handful of initiatives going on with startup fiber-to-the-home providers taking these large projects. Their investment thesis at the time said a mile of fiber costs 'x'," Major said. "I know for a fact there are companies that agreed to these things and now can’t raise the capital. I believe there’s going to be a series of missteps due to companies starting that have never operated before. If we’re patient with our dry powder, it gives us a huge opportunity to buy up those assets.”
He said Morrison isn’t the only private equity firm sizing up the market for consolidation. “There are PE firms that have raised five, six, seven rounds and are looking for places to deploy,” he said. “I do believe the next 12-18 months are going to be interesting.”
The analysts at Moffett Nathanson noted in a May 2 research note that Cable One is currently trading below the replacement cost of its network. It also noted that investors are pouring money into new fiber builds at high costs, while boycotting Cable One’s already-built network.
Could PE firms be looking at Cable One and other regional LEC and cable operators? Maybe.
Moffett wrote, “Cable One’s valuation could draw M&A attention, though to be clear there is no evidence the company is in play.”
Of course, analysts have been predicting for years now that a rollup in the broadband market is imminent. Will 2024 be the year? We'll be watching closely.