Cincinnati Bell to acquire Hawaiian Telcom, OnX Enterprise Solutions

Cincinnati Bell Inc. (NYSE: CBB) will expand its network communications and enterprise IT services portfolios with a pair of acquisitions. The company announced it has agreed to acquire Hawaiian Telcom, Inc. (NASDAQ: HCOM) for approximately $650 million in cash and stock and OnX Enterprise Solutions for approximately $201 million in cash. Cincinnati Bell expects to close the Hawaiian Telcom deal in the second half of next year and the OnX purchase in the beginning of the fourth quarter of 2017.

In the first deal, Hawaiian Telcom shareholders will be able to choose to receive 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 they own. The offer is subject to proration so that the aggregate purchase will be 60% cash and 40% Cincinnati Bell common stock. The price represents a 23.7% premium to HCOM's trailing 20-day calendar volume weighted average price (VWAP), according to Cincinnati Bell.

Hawaiian Telcom will retain its name and continue to be locally managed. The service provider also will have two seats on the combined company board, reserved for Hawaii residents. Cincinnati Bell says it will invest in Hawaiian Telcom's fiber-optic network, thereby ensuring continued employment for most if not all of Hawaiian Telcom's current 1,300 employees. The deal will not "materially impact jobs," Cincinnati Bell stated.

Cincinnati Bell says the acquisition provides access to both Honolulu as well as direct access to trans-Pacific submarine networks (see, for example, "Hawaiki Cable picks Hawaiian Telcom to provide landing station"). The latter benefit will expand Cincinnati Bell's route diversity as well as exposure to customers on both sides of the Pacific. The combined companies will operate more than 14,000 fiber route miles of fiber-optic network infrastructure.

Meanwhile, Cincinnati Bell describe the acquisition of OnX as being in the form of "cash on a cash-free, debt-free basis." The deal will add scale, service offerings, free cash flow generation, and customer diversification to Cincinnati Bell's IT services business. The addition of OnX will expand Cincinnati Bell's IT sales offices to more than 20 and provide access to more than 50 data centers through strategic partners in the U.S. and Canada. OnX presently serves several Fortune 500 companies, according to Cincinnati Bell, and operates in the U.S., Canada, and the UK.

"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," stated Leigh Fox, president and CEO of Cincinnati Bell. "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."

Cincinnati Bell says it has secured committed financing, subject to customary closing conditions, from Morgan Stanley Senior Funding, Inc., to fund some of the cash consideration of the deals and to refinance Cincinnati Bell and Hawaiian Telcom's existing debt.

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