CINCINNATI, July 10, 2017 /PRNewswire/ -- Cincinnati
Bell Inc. (NYSE: CBB) today announced it has entered into separate
definitive merger agreements with Hawaiian Telcom, Inc. (NASDAQ:
HCOM) 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.
Leigh Fox, President and Chief
Executive Officer of Cincinnati Bell, stated, "Cloud migration, the
need for fiber infrastructure that supports 5G-ready, high-density
data transmission and IoT are the key trends that will define
telecommunications in the future. The implementation of our refined
strategy, coupled with today's combinations, will help build two
distinct businesses with the appropriate scale, structure and
leadership to deliver superior operating results, while providing
strategic optionality from a diversified but complementary
portfolio of assets. Today's announcement positions us to
capitalize on these favorable market dynamics while enhancing our
leadership at the forefront of the telecommunications landscape.
Together, Hawaiian Telcom and OnX bring Cincinnati Bell greater
financial and operational scale and established market positions in
new
geographies."
Hawaiian Telcom Combination
The merger with Hawaiian Telcom will combine two companies with
complementary values, goals and business strategies, including a
shared focus on investment in fiber. The companies also share a
commitment to their local communities that stretches back
generations, and a mutual desire to provide access to innovative
technologies that fuel social and economic development.
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. Also, due to distance
and separate operations, this merger is not expected to materially
impact jobs in Hawai'i. In fact, Cincinnati Bell has committed to
investing in Hawaiian Telcom's next-generation fiber network
statewide, which will create additional opportunities for
growth.
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 combination with Hawaiian Telcom is an important step toward
building scale and locking in fiber density value for shareholders
and customers, as Cincinnati Bell continues to anticipate and
capitalize on the growing demand for fiber capacity. With the
merger, Cincinnati Bell gains access to both Honolulu, a well-developed, fiber-rich city
and the growing neighbor islands. The combination will provide
Hawaiian Telcom with expanded liquidity and capital flexibility to
continue to expand its next-generation fiber network to enable
growth and better serve its customer base statewide. 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.
Scott K. Barber, President and
Chief Executive Officer of Hawaiian Telcom, commented, "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 for Hawaiian
Telcom. 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. With
our highly complementary values, distinctive brands focused on
fiber as the future, and our shared commitment to the communities
in which we operate, I am confident that this partnership will
provide great opportunities for growth and value creation to both
Hawaiian Telcom and Cincinnati Bell, along with our customers and
partners."
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. OnX also
brings efficiencies and customer diversification, including several
Fortune 500 companies. The expansion of Cincinnati Bell's
geographic footprint in IT services, and the Company's ability to
seize upon the growing demand for its enterprise IT solutions and
cloud services is a critical element of its refined strategy.
Tom Signorello, Chief Executive
Officer of OnX, added, "OnX is excited to join the Cincinnati Bell
family, particularly given its focus on becoming a cloud integrator
capable of delivering innovative IT solutions and cloud services.
Our services-focused IT solutions are highly complementary to
Cincinnati Bell's existing offerings, and we are excited to share
several new capabilities as well. Our clients continue to seek
opportunities to better leverage the cloud, and combining our
shared expertise and world-class employee bases will position us to
better serve our customers' needs, cross-sell additional services
and unlock further growth opportunities for the combined
company."
Financial Details
Both transactions are subject to customary regulatory approvals
and other customary closing conditions for each transaction. In
particular, the Hawaiian Telcom combination is subject to certain
federal, state, and local regulatory approvals and approval by
Hawaiian Telcom's shareholders. The Company anticipates the OnX
transaction will close in the beginning of the fourth quarter 2017,
while the Hawaiian Telcom transaction is expected to close in the
second half of 2018. The transactions are not conditioned on each
other.
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.2 Cincinnati 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.
In closing, Mr. Fox continued, "We are excited about the
trajectory and growth prospects of our industry and our ability to
capitalize on the rapidly changing dynamics in our markets. With
Hawaiian Telcom and OnX, we have found great assets and partners on
that same trajectory."
Financing
Cincinnati Bell has secured committed financing, subject to
customary closing conditions, from Morgan Stanley Senior Funding,
Inc., to fund a portion of the cash consideration of the
transactions and to refinance Cincinnati Bell and Hawaiian Telcom's
existing debt. Cincinnati Bell's net leverage (net debt
divided by pro forma Adjusted EBITDA) is expected to remain in-line
with current levels, including run-rate synergies.
Moelis & Company and Morgan Stanley & Co. LLC are acting
as financial advisors to Cincinnati Bell for the Hawaiian Telcom
and OnX transactions; Stephens Inc. is also acting as financial
advisor for the OnX transaction. Cravath, Swaine & Moore LLP,
Morgan, Lewis & Bockius, and BosseLaw, PLLC are serving as
legal counsel for both transactions. UBS Investment Bank is acting
as financial advisor to Hawaiian Telcom, and Gibson Dunn &
Crutcher, LLP is serving as legal counsel. Raymond James & Associates, Inc. is acting
as financial advisor to OnX, and Schulte
Roth & Zabel LLP is serving as legal counsel.
Conference Call
Cincinnati Bell will host a conference call on July 10, 2017, at 8:30
a.m. (ET) to discuss the transactions. A live webcast of the
call will be available via the Investor Relations section of
www.cincinnatibell.com. The conference call dial-in number is
800-930-1344, with the passcode 3371598. Callers located outside of
the U.S. and Canada may dial
719-457-2662. A taped replay of the conference call will be
available shortly after the conclusion of the call. The replay will
be available at 888-203-1112. For callers outside of the U.S. and
Canada, access information for the
replay can be found here. The replay reference number is 3371598.
An archived version of the webcast will also be available in the
Investor Relations section of www.cincinnatibell.com.
No Offer or Solicitation
This communication is neither an offer to sell, nor a
solicitation of an offer to buy any securities, the solicitation of
any vote or approval in any jurisdiction pursuant to or in
connection with the proposed transaction or otherwise, nor shall
there be any sale, issuance or transfer of securities in any
jurisdiction in contravention of applicable law. No offer of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended, and otherwise in accordance with applicable law.
Additional Information and Where to Find It
The proposed transaction involving Cincinnati Bell and Hawaiian
Telcom will be submitted to Hawaiian Telcom's stockholders for
their consideration. In connection with the proposed transaction
involving Cincinnati Bell and Hawaiian Telcom, Cincinnati Bell
intends to file with the Securities and Exchange Commission (the
"SEC") a registration statement on Form S-4 (the "Registration
Statement"), which will include a prospectus with respect to
Cincinnati Bell's common shares to be issued in the proposed
transaction and a proxy statement for Hawaiian Telcom's
stockholders (the "Proxy Statement") and Hawaiian Telcom will mail
the Proxy Statement to its stockholders and file other documents
regarding the proposed transaction with the SEC. SECURITY
HOLDERS ARE URGED AND ADVISED TO READ ALL RELEVANT MATERIALS FILED
WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT, CAREFULLY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND
RELATED MATTERS. The Registration Statement, the Proxy Statement
and other relevant materials (when they become available) and any
other documents filed or furnished by Cincinnati Bell or Hawaiian
Telcom with the SEC may be obtained free of charge at the SEC's web
site at www.sec.gov. In addition, security holders will be able to
obtain free copies of the Registration Statement and the Proxy
Statement from Cincinnati Bell by going to its investor relations
page on its corporate web site at www.cincinnatibell.com and from
Hawaiian Telcom by going to its investor relations page on its
corporate web site at www.hawaiiantel.com.
Participants in the Solicitation
Cincinnati Bell, Hawaiian Telcom, their respective directors and
certain of their respective executive officers and employees may be
deemed to be participants in the solicitation of proxies in
connection with the proposed transaction involving Cincinnati Bell
and Hawaiian Telcom. Information about Cincinnati Bell's directors
and executive officers is set forth in its definitive proxy
statement for its 2017 Annual Meeting of Shareholders, which was
filed with the SEC on March 24, 2017
and information about Hawaiian Telcom's directors and executive
officers is set forth in its definitive proxy statement for its
2017 Annual Meeting of Stockholders, which was filed with the SEC
on March 14, 2017. These documents
are available free of charge from the sources indicated above, and
from Cincinnati Bell by going to its investor relations page on its
corporate web site at www.cincinnatibell.com and from Hawaiian
Telcom by going to its investor relations page on its corporate web
site at www.hawaiiantel.com. Additional information regarding the
interests of participants in the solicitation of proxies in
connection with the proposed transaction will be included in the
Registration Statement, the Proxy Statement and other relevant
materials Cincinnati Bell and Hawaiian Telcom intend to file with
the SEC.
Cautionary Note Regarding Forward-Looking Statements
This communication may contain "forward-looking" statements, as
defined in federal securities laws including the Private Securities
Litigation Reform Act of 1995, which are based on our current
expectations, estimates, forecasts and projections. Statements that
are not historical facts, including statements about the beliefs,
expectations and future plans and strategies of the Company, are
forward-looking statements. Actual results may differ materially
from those expressed in any forward-looking statements. The
following important factors, among other things, could cause or
contribute to actual results being materially and adversely
different from those described or implied by such forward-looking
statements including, but not limited to: those discussed in this
communication; we operate in highly competitive industries, and
customers may not continue to purchase products or services, which
would result in reduced revenue and loss of market share; we may be
unable to grow our revenues and cash flows despite the initiatives
we have implemented; failure to anticipate the need for and
introduce new products and services or to compete with new
technologies may compromise our success in the telecommunications
industry; our access lines, which generate a significant portion of
our cash flows and profits, are decreasing in number and if we
continue to experience access line losses similar to the past
several years, our revenues, earnings and cash flows from
operations may be adversely impacted; our failure to meet
performance standards under our agreements could result in
customers terminating their relationships with us or customers
being entitled to receive financial compensation, which would lead
to reduced revenues and/or increased costs; we generate a
substantial portion of our revenue by serving a limited geographic
area; a large customer accounts for a significant portion of our
revenues and accounts receivable and the loss or significant
reduction in business from this customer would cause operating
revenues to decline and could negatively impact profitability and
cash flows; maintaining our telecommunications networks requires
significant capital expenditures, and our inability or failure to
maintain our telecommunications networks could have a material
impact on our market share and ability to generate revenue;
increases in broadband usage may cause network capacity
limitations, resulting in service disruptions or reduced capacity
for customers; we may be liable for material that content providers
distribute on our networks; cyber attacks or other breaches of
network or other information technology security could have an
adverse effect on our business; natural disasters, terrorists acts
or acts of war could cause damage to our infrastructure and result
in significant disruptions to our operations; the regulation of our
businesses by federal and state authorities may, among other
things, place us at a competitive disadvantage, restrict our
ability to price our products and services and threaten our
operating licenses; we depend on a number of third party providers,
and the loss of, or problems with, one or more of these providers
may impede our growth or cause us to lose customers; a failure of
back-office information technology systems could adversely affect
our results of operations and financial condition; if we fail to
extend or renegotiate our collective bargaining agreements with our
labor union when they expire or if our unionized employees were to
engage in a strike or other work stoppage, our business and
operating results could be materially harmed; the loss of any of
the senior management team or attrition among key sales associates
could adversely affect our business, financial condition, results
of operations and cash flows; our debt could limit our ability to
fund operations, raise additional capital, and fulfill our
obligations, which, in turn, would have a material adverse effect
on our businesses and prospects generally; our indebtedness imposes
significant restrictions on us; we depend on our loans and credit
facilities to provide for our short-term financing requirements in
excess of amounts generated by operations, and the availability of
those funds may be reduced or limited; the servicing of our
indebtedness is dependent on our ability to generate cash, which
could be impacted by many factors beyond our control; we depend on
the receipt of dividends or other intercompany transfers from our
subsidiaries and investments; the trading price of our common
shares may be volatile, and the value of an investment in our
common shares may decline; the uncertain economic environment,
including uncertainty in the U.S. and world securities markets,
could impact our business and financial condition; our future cash
flows could be adversely affected if it is unable to fully realize
our deferred tax assets; adverse changes in the value of assets or
obligations associated with our employee benefit plans could
negatively impact shareowners' deficit and liquidity; third parties
may claim that we are infringing upon their intellectual property,
and we could suffer significant litigation or licensing expenses or
be prevented from selling products; third parties may infringe upon
our intellectual property, and we may expend significant resources
enforcing our rights or suffer competitive injury; we could be
subject to a significant amount of litigation, which could require
us to pay significant damages or settlements; we could incur
significant costs resulting from complying with, or potential
violations of, environmental, health and human safety laws; the
timing and likelihood of completion of our proposed acquisitions of
Hawaiian Telcom and OnX, including the timing, receipt and terms
and conditions of any required governmental and regulatory
approvals for the proposed transactions that could reduce
anticipated benefits or cause the parties to abandon the
transactions; the possibility that Hawaiian Telcom's stockholders
may not approve the proposed merger; the possibility that competing
offers or acquisition proposals for Hawaiian Telcom will be made;
the occurrence of any event, change or other circumstance that
could give rise to the termination of the proposed transactions;
the possibility that the expected synergies and value creation from
the proposed transactions will not be realized or will not be
realized within the expected time period; the risk that the
businesses of the Company and Hawaiian Telcom and OnX will not be
integrated successfully; disruption from the proposed transactions
making it more difficult to maintain business and operational
relationships; the risk that unexpected costs will be incurred; and
the possibility that the proposed transactions do not close,
including due to the failure to satisfy the closing conditions and
the other risks and uncertainties detailed in our filings,
including our Form 10-K, with the SEC as well as Hawaiian Telcom's
filings, including its Form 10-K, with the SEC.
These forward-looking statements are based on information, plans
and estimates as of the date hereof and there may be other factors
that may cause our actual results to differ materially from these
forward-looking statements. We assume no obligation to update the
information contained in this communication except as required by
applicable law.
Use of Non-GAAP Financial Measures
This press release contains information about adjusted earnings
before interest, taxes, depreciation and amortization (Adjusted
EBITDA) and net debt. These are non-GAAP financial measures used by
Cincinnati Bell management when evaluating results of operations
and cash flow. Management believes these measures also provide
users of the financial statements with additional and useful
comparisons of current results of operations and cash flows with
past and future periods. Non-GAAP financial measures should not be
construed as being more important than comparable GAAP measures.
Detailed reconciliations of these non-GAAP financial measures to
comparable GAAP financial measures have been included in the tables
distributed with this release and are available in the Investor
Relations section of www.cincinnatibell.com.
Adjusted EBITDA provides a useful measure of operational
performance. The company defines Adjusted EBITDA as GAAP operating
income plus depreciation, amortization, restructuring and severance
related charges, (gain) loss on sale or disposal of assets,
transaction costs, curtailment (gain) loss, asset impairments,
components of pension and other retirement plan costs (including
interest costs, asset returns, and amortization of actuarial gains
and losses), and other special items. Adjusted EBITDA should not be
considered as an alternative to comparable GAAP measures of
profitability and may not be comparable with the measure as defined
by other companies.
Net debt provides a useful measure of liquidity and financial
health. The Company defines net debt as the sum of the face amount
of short-term and long-term debt, unamortized premium and/or
discount and unamortized note issuance costs, offset by cash and
cash equivalents.
About Cincinnati Bell Inc.
With headquarters in Cincinnati,
Ohio, Cincinnati Bell Inc. (NYSE: CBB) provides integrated
communications solutions – including local and long distance voice,
data, high-speed Internet and video – that keep residential and
business customers in Greater
Cincinnati and Dayton connected with each other and with the
world. In addition, enterprise customers across the United States rely on CBTS, a wholly-owned
subsidiary, for efficient, scalable office communications systems
and end-to-end IT solutions. For more information, please visit
www.cincinnatibell.com.
About Hawaiian Telcom
Hawaiian Telcom (NASDAQ: HCOM), headquartered in Honolulu, is Hawai'i's Technology Leader,
providing integrated communications, broadband, data center and
entertainment solutions for business and residential customers.
With roots in Hawai'i beginning in 1883, the Company offers a full
range of services including Internet, video, voice, wireless, data
network solutions and security, colocation, and managed and cloud
services supported by the reach and reliability of its next
generation fiber network and a 24/7 state-of-the-art network
operations center. With employees statewide sharing a commitment to
innovation and a passion for delivering superior service, Hawaiian
Telcom provides an Always OnSM customer experience. For
more information, visit hawaiiantel.com.
About OnX Enterprise Solutions
OnX Enterprise Solutions is a leading technology service and
solution provider. The company assesses, designs, builds, secures
and manages complete technology environments with specific
expertise in cloud and managed services, digital application
services and infrastructure solutions. For more than 30 years, OnX
has helped clients overcome business challenges and achieve
exceptional business results through technology. OnX's team of more
than 500 IT professionals work at OnX offices throughout
North America and in the U.K.,
with global headquarters in Toronto,
Canada, and U.S. headquarters in New York, N.Y. For more information, visit
www.OnX.com.
------------------------------------------------------
1 Hawaiian Telcom's adjusted EBITDA represents net
income plus interest expense (net of interest income and other),
income taxes, depreciation and amortization, gain on sale of
property, non-cash stock and other performance-based compensation,
SystemMetrics earn-out, pension settlement loss, severance costs
and other special items.
2 Based on FYE 4/30/17, OnX's adjusted EBITDA
represents income before income taxes plus share-based
compensation, depreciation of capital assets, amortization of
intangible assets, interest expense, foreign exchange loss, net
restructuring and other charges and management fee.
Non-GAAP
Reconciliations
|
|
|
|
|
$MM, unless otherwise
noted
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati
Bell
|
Hawaiian
Telcom
|
OnX
|
Run-Rate
Synergies
|
Total
|
Year Ended
|
12/31/2016
|
12/31/2016
|
4/30/2017
|
|
|
|
|
|
|
|
|
Net Income
(GAAP)
|
$102
|
$1
|
($3)
|
-
|
$100
|
(+) Income Tax
Expense
|
$61
|
$1
|
$4
|
-
|
$66
|
(+) Interest Expense
and Finance Costs
|
$76
|
$17
|
$9
|
-
|
$102
|
(+) Gain on Sale of
CyrusOne Investment
|
($157)
|
-
|
-
|
-
|
($157)
|
(+) Loss on
Extinguishment of Debt, net
|
$19
|
-
|
-
|
-
|
$19
|
(+) Other Income,
net
|
($8)
|
-
|
-
|
-
|
($8)
|
|
|
|
|
|
|
Operating Income
(GAAP)
|
$93
|
$19
|
$10
|
-
|
$122
|
(+) Depreciation
& Amortization
|
$182
|
$90
|
$5
|
-
|
$277
|
(+) Restructuring and
Severance Related Charges
|
$12
|
-
|
$3
|
-
|
$15
|
(+) Loss on Sale or
Disposal of Assets
|
$1
|
-
|
-
|
-
|
$1
|
(+) Pension and Other
Retirement Plan Expenses
|
$17
|
$1
|
-
|
-
|
$18
|
(+) Non-Cash Stock
and Other Performance-Based Comp.
|
-
|
$3
|
$5
|
-
|
$8
|
(+) SystemMetrics
Earn-Out
|
-
|
$1
|
-
|
-
|
$1
|
(+) FX
Losses
|
-
|
-
|
$4
|
-
|
$4
|
(+) Management
Fees
|
-
|
-
|
$2
|
-
|
$2
|
(+/-)
Other
|
-
|
$2
|
-
|
-
|
$2
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$305
|
$116
|
$29
|
-
|
$450
|
(+) Hawaiian Telcom
Run-Rate Synergies
|
-
|
-
|
-
|
$11
|
$11
|
(+) OnX Run-Rate
Synergies
|
-
|
-
|
-
|
$10
|
$10
|
Combined Adjusted
EBITDA (including synergies)
|
$305
|
$116
|
$29
|
$21
|
$471
|
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SOURCE Cincinnati Bell Inc.