by Timothy McQuiston, Vermont Business Magazine On November 14, the Vermont Public Utility Commission approved the sale of the corporate parent of Vermont’s largest landline telecommunications provider, Consolidated Communications Holdings, Inc (CNSL). This is one step in Consolidated being acquired by Searchlight Capital. Consolidated, based in Mattoon, IL, will still need federal regulatory approval. Consolidated is the legacy telephone company which has changed hands over the years, including by Verizon and most recently FairPoint in 2017 for $1.3 billion. Consolidated's Fidium brand provides fiber optic service within its 20-state coverage area.
On October 16, 2023, Consolidated , a top 10 fiber provider in the United States, announced it had entered into a definitive agreement to be acquired by affiliates of private equity firm Searchlight Capital Partners, L.P. and British Columbia Investment Management Corporation (BCI) in an all‑cash transaction with an enterprise value of approximately $3.1 billion, including the assumption of debt. Under the terms of the agreement, Searchlight and BCI will acquire all of the Consolidated common stock not already owned by Searchlight for $4.70 per share in cash.
As of today, CNSL shares are trading at $4.63. The 52-week range is $4.18 to $4.70. Consolidated's market cap is $548.5 million. Annual revenues in FY 2023 were $1.1 billion.
Consolidated shareholders approved the acquisition last January. The transaction, which will result in Consolidated becoming a private company, is expected to close in late fourth quarter 2024 or early first quarter 2025, subject to customary closing conditions, including receipt of regulatory approvals.
The PUC stated: "Specifically, we approve a joint petition filed by Consolidated Communications Holdings, Inc. (“CCHI”); Consolidated Communications Enterprise Services, Inc. (“CCES”); Consolidated Communications of Northland Company (“Consolidated Northland”); Consolidated Communications of Vermont Company, LLC (“Consolidated Vermont”) (together “Consolidated”); and Condor Holdings LLC, a wholly-owned subsidiary of Searchlight III CVL, L.P. (“Condor”) (collectively the “Joint Petitioners”), pursuant to 30 V.S.A. §§ 107, 109, and 311, for approval of a transaction that will result in Condor acquiring all issued and outstanding stock in Consolidated (the “Transaction”)."
Searchlight, in the aggregate, is currently the beneficial owner of approximately 34% of the Company’s outstanding shares of common stock, as well as the holder of 100% of the Company’s outstanding Series A perpetual preferred stock. Under the terms of the Agreement, Searchlight and BCI will acquire all of the Consolidated common stock not already owned by Searchlight for $4.70 per share in cash.
The purchase price represents a premium of approximately 70% to the closing price of the Company’s common stock through April 12, 2023, the last trading day prior to the submission of Searchlight and BCI’s initial non-binding proposal to the Company’s Board of Directors (the “Board”), and a premium of approximately 33% to the closing price of the Company’s common stock as of October 13, 2023. The transaction implies a 9.6x multiple on the Company’s LTM EBITDA, pro forma for the previously disclosed sales of certain non-core operations, including the expected sale of Washington assets, as of June 30, 2023. The proposed transaction has been unanimously approved by a special committee of independent and disinterested directors of the Board (the “Special Committee”), advised by independent legal and financial advisors, formed to evaluate and consider the proposal and other potential strategic alternatives. The Board of Directors of the Company, following recusals of directors affiliated with Searchlight and BCI, has approved the proposed transaction on the unanimous recommendation of the Special Committee.
“We are pleased to have reached this agreement with Searchlight and BCI, which delivers a significant and certain cash premium to our shareholders,” said Robert J. Currey, the Chairman of the Consolidated Communications Board and the Special Committee Chair. “The Special Committee thoroughly reviewed their proposal, considering the benefits of the transaction against other strategic alternatives available to the Company, including continuing as a publicly-traded company. We also considered capital structure alternatives, analyzing the potential availability, cost and feasibility of injecting additional capital into the business. Following this review, the Special Committee determined this transaction is the best path forward for Consolidated Communications and its shareholders. This transaction reflects the value of our business, taking into account both the growth opportunities of the Company’s fiber build-out, as well as the potential risks associated with the Company’s ongoing strategic transformation, including impacts from liquidity and leverage limitations within which the Company must operate, the dynamic competitive pressures of a sector-wide fiber conversion and the imperative to continue our fiber build-out.”
“We believe this transaction provides substantial value for our shareholders while also enhancing our flexibility to continue the execution of our fiber expansion strategy,” said Bob Udell, President and Chief Executive Officer of Consolidated Communications. “We have been operating in a shifting economic environment over the course of this past year, resulting in higher operating costs and a challenging market for attractive financing options. While we are pleased with how we have managed the business despite these headwinds, several factors recently necessitated that we delay our estimated fiber build completion beyond 2026. As we navigate this environment, we will have increased flexibility as a private company and Searchlight will continue to be an outstanding partner as we advance our transformation to a leading fiber-first provider. We believe this continued partnership will create an outstanding outcome for the Company, our customers and our employees.”
In connection with execution of the Agreement, Consolidated has entered into an amendment (the “Amendment”) to its credit agreement. The Amendment provides for interim financial covenant relief by increasing the maximum consolidated first lien leverage ratio permitted under the credit agreement, subject to certain conditions. The covenant relief provided for in the Amendment will provide the Company with near-term financial and operational flexibility amid a more challenging operating environment, enabling Consolidated to conservatively continue its fiber build plan between signing and closing. The Amendment will remain in effect following closing of the transaction. In the event the transaction does not close by August 1, 2025, it is expected that the financial covenant will revert to the levels that currently apply.
Vermont PUC ORDER
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED by the Vermont Public Utility Commission (“Commission”) that:
1.The joint petition filed by Consolidated Communications Holdings, Inc. (“CCHI”);Consolidated Communications Enterprise Services, Inc. (“CCES”); Consolidated Communications of Northland Company (“Consolidated Northland”); Consolidated Communications of Vermont Company, LLC (“Consolidated Vermont”) (together “Consolidated”); and Condor Holdings LLC, a wholly-owned subsidiary of Searchlight III CVL, L.P. (“Condor”) (collectively the “Joint Petitioners”), pursuant to 30 V.S.A. §§ 107, 109, and311, for approval of a transaction that will result in Condor acquiring all issued and outstandingstock in Consolidated is approved (the “Transaction”).
2.For three years following the Transaction, Consolidated must file a semi-annualreport with the Commission and the Vermont Department of Public Service (“Department”) that details headcount for its employees and subcontractors supporting its Vermont operations (by job title/category). The report must include at minimum the following information: (1) the headcount for personnel (employees and contractors) for the last two quarters; and (2) projected staffing levels for next quarter. These reports must be filed in the compliance subcase of this case in ePUC by January 15 and July 15 of each of the next three years, with the first report due by July 15, 2025.
3.For three years following the Transaction, Consolidated must file a semi-annualreport with the Commission and the Department that details Consolidated’s fiber network buildouts in Vermont for the previous year. The report must include the total number of route miles of new fiber installed, the locations of the installations, and the number of locations passed by fiber and the broadband speeds available at such locations using the following categories: 4 Mbps/1 Mbps (download/upload) or less, greater than 4 Mbps/1 Mbps but less than 25 Mbps/3 Mbps, 25 Mbps/3 Mbps or greater but less than 100 Mbps/20 Mbps, 100 Mbps/20 Mbps or greater but less than 100 Mbps/100 Mbps, and 100 Mbps/100 Mbps or greater. These reports
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must be filed in the compliance subcase of this case in ePUC by January 15 and July 15 of each of the next three years, with the first report due by July 15, 2025. 4. For three years following the Transaction, Consolidated must file a semi-annual report with the Commission and the Department that details capital investment, maintenance, and repair for Consolidated’s legacy copper network in Vermont. The reports must include the following information: detail on capital investments, maintenance and repair budgets, and actual spend amounts for Consolidated’s legacy copper network in Vermont by exchange, including whether there are fiber deployments in the area, and expected and actual copper discontinuations in Vermont by exchange. These reports must be filed in the compliance subcase of this case in ePUC by January 15 and July 15 of each of the next three years, with the first report due by July 15, 2025.
5. Consolidated must adhere to the agreements included in Exhibit DPS-CMF-1, which requires that Consolidated give priority to the following customer groups when responding to complaints and requests (in this order): (1) services that affect public safety, including services with Telecommunications Service Priority designation; (2) customers with medical issues (if Consolidated has reason to believe that a customer is wrongly asserting a medical issue, the customer can be required to provide Consolidated with proof of a medical emergency (as defined in Commission Rule 7.623 as may be amended from time to time)); and (3) customers that contact Consolidated and indicate they have a pending repair request for more than seven (7) days.
6. Consolidated must designate an individual or individuals among whose primary responsibilities will be reviewing and engineering make-ready requests and who will be referred to as the “Designated Agent.” The Designated Agent must meet with a representative or representatives of the Vermont Communications Union District Association (“VCUDA”) at least twice per year to prepare and review trends across VCUDA’s member applications for pole attachments and make-ready work. Consolidated must also identify and designate a duly authorized representative in management with executive-level contacts to resolve make-ready issues with VCUDA members.
7. Consolidated must inform the Commission and the Department of any material change in the terms and conditions of the transactions.
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8. Consolidated must notify the Commission within 30 days after the final closing of the transactions. This notification must be filed in the compliance subcase of this case in ePUC.
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