Cincinnati Bell to merge with Hawaiian Telcom

Cincinnati Bell announced it has entered into separate definitive merger agreements with Hawaiian Telcom and OnX Enterprise Solutions, adding meaningful scale and expanded service offerings to its combined network and enterprise IT services businesses.

Cincinnati Bell has signed a definitive agreement to combine with Hawaiian Telcom, the leading integrated communications provider serving the state of Hawai’i, for a total consideration of approximately $650 million, representing a 23.7% premium to HCOM’s trailing 20-day calendar VWAP.

Under the agreement, Hawaiian Telcom shareholders will have the option to elect either $30.75 in cash, 1.6305 shares of Cincinnati Bell common stock, or a mix of $18.45 in cash and 0.6522 shares of Cincinnati Bell common stock for each share of Hawaiian Telcom, subject to proration such that the aggregate consideration to be paid to Hawaiian Telcom shareholders will be 60 percent cash and 40 percent Cincinnati Bell common stock.

Cincinnati Bell has also signed a definitive agreement to acquire OnX Enterprise Solutions, a technology services and solutions provider in North America and the United Kingdom, for a total consideration of approximately $201 million in cash on a cash-free, debt-free basis.

The transactions advance Cincinnati Bell’s refined strategy to focus on growing its business in two distinct areas: network communications and enterprise IT services. With Cincinnati Bell’s network business, the Company is investing in the future through its accelerated fiber build, and continuing to successfully migrate customers in both urban and non-urban areas from legacy services to more advanced fiber offerings.

In the Company’s IT services business, Cincinnati Bell is expanding its portfolio of enterprise networking, unified communications and data center solutions, and becoming a leading cloud integrator for both voice and data. In parallel, the Company is extending its geographic footprint and diversifying its customer base, adding incremental value for existing customers.

This merger will combine Hawaiian Telcom’s 1,300 employees with Cincinnati Bell’s 3,000 to create a bigger and stronger enterprise that will foster greater innovation and deliver more competitive products and services to customers. Cincinnati Bell is committed to Hawaiian Telcom’s workforce and ensuring that it can meet the needs of its customers today and into the future.

Cincinnati Bell and Hawaiian Telcom will retain their names and separate brand identities while sharing best practices and resources to the benefit of both companies. Hawaiian Telcom will continue to be locally managed from Hawai’i and its union labor agreements will be honored.

Hawaiian Telcom will have two seats on the combined company Board and these seats will be held by Hawai’i residents, ensuring that Hawai’i is well represented when broader strategic decisions are made.

The companies’ combined fiber networks will exceed 14,000 fiber route miles. In addition, Hawaiian Telcom provides the Company with direct access to the 2.6TB of Trans-Pacific fiber cable capacity linking Asia and the U.S., which expands Cincinnati Bell’s route diversity and gives the combined company exposure to large, data-hungry demographics on both sides of the Pacific.

OnX Acquisition

The acquisition of OnX adds meaningful scale, service offerings, free cash flow generation, and customer diversification to Cincinnati Bell’s IT services business and supports the Company’s transformation to a Hybrid IT provider. Specifically, the transaction will expand the Company’s footprint to 20+ IT sales offices and provide access to 50+ data centers through strategic partners, significantly increasing Cincinnati Bell’s presence in the U.S. and Canada.

For the full year 2016, Hawaiian Telcom generated revenue of $393 million and adjusted EBITDA of $116 million.1 For the fiscal year ended 4/30/17, OnX’s revenue was $614 million and adjusted EBITDA was $29 million.2Cincinnati Bell expects the combinations to be accretive to free cash flow per share for CBB shareholders. Cincinnati Bell is targeting run rate combined synergies of approximately $21 million, substantially all of which will be realized within two years post-close.