Wildcat Capital Management Supports the Company's Strategy as a Standalone Public Entity
Believes the Current "Take Private" Proposal Significantly Undervalues Consolidated Communications
NEW YORK, July 12, 2023 /PRNewswire/ -- Wildcat Capital Management, LLC (together with its affiliates, "Wildcat"), which beneficially owns approximately 2.6% of the outstanding shares of Consolidated Communications Holdings, Inc. ("CNSL" or the "Company") (NASDAQ:CNSL), today sent a letter to the Special Committee of CNSL's Board of Directors regarding its significant concerns with the non-binding takeover offer, dated April 12, 2023, from Searchlight Capital Partners, L.P. and British Columbia Investment Management Corporation. Wildcat is a long-term investor and one of the Company's largest shareholders. Wildcat supports the Company's current strategic trajectory and firmly believes in CNSL's value as a standalone public entity. In its letter, Wildcat urged the Special Committee to not pursue an offer that it believes significantly undervalues CNSL's equity by a factor of 3.5x. Based on analysis detailed in its letter, Wildcat believes that any offer for the Company that the Special Committee recommends should be no lower than $14.00 per share.
A full copy of the letter is below:
Consolidated Communications Holdings, Inc.
2116 South 17th Street
Mattoon, Illinois 61938
Attention: Special Committee of the Board of Directors
Dear Members of the Consolidated Communications Special Committee:
Wildcat Capital Management, LLC (together with its affiliated investment vehicles, "Wildcat," "we," or "our") is a long-term, patient investor which currently owns more than three million shares of Consolidated Communications Holdings, Inc. ("CNSL" or the "Company"), which we believe, based on public filings, makes us the Company's fifth-largest independent shareholder. As a sizeable shareholder of CNSL, we are delivering this letter to the Special Committee of CNSL's Board of Directors (the "Board") to detail our updated views on the contemplated take-private proposal from Searchlight Capital Partners, L.P. ("Searchlight") and British Columbia Investment Management Corporation ("BCI"), following our previous letter to the Special Committee dated June 15, 2023. We are not activist investors but have concluded, somewhat reluctantly, that at this juncture it is in the best interests of all CNSL shareholders for us to also make our views publicly known.
At a high level, we have confidence in the operating strategy that CNSL management is executing and believe that with its existing liquidity and build/financing flexibility, CNSL does not need to pursue strategic alternatives at this juncture. We are confident that CNSL can, and will, create significant shareholder value as a standalone public entity.
Further, Wildcat believes that Searchlight's and BCI's non-binding proposal to acquire all of CNSL's outstanding shares not already owned by such parties for $4.00 per share significantly undervalues CNSL's equity by a factor of 3.5x. As detailed in this letter, our view is based on several analyses, including our assessment of the long-term asset value of CNSL and a review of the most relevant precedent transaction ? the acquisition of certain incumbent local exchange carrier ("ILEC") assets from Lumen Technologies ("Lumen") by funds managed by affiliates of Apollo Global Management, Inc. (the "Apollo-managed funds") to create "Brightspeed." Both analyses imply a current fair value of approximately $14.00 per share.
1) Wildcat Supports CNSL Management and its Current Strategy
2) We Contend that CNSL Is Not in Duress and Does Not Need to Sell Itself at this Time
3) We Believe that CNSL is Extremely Undervalued at Searchlight's and BCI's Proposed $4.00 per Share Acquisition Price and that the Special Committee Should Not Recommend a Sale of CNSL at Lower than $14.00 per Share
Our Analysis of the Future State Value Implies a Higher Valuation:
Recent Comparable Transaction Analysis Supports our Valuation Assumptions:
In conclusion, Wildcat has full faith in CNSL's strategy and existing liquidity, build and financing flexibility, and does not view strategic alternatives to be necessary at this time to support CNSL's long-term objectives. In the interest of all CNSL shareholders, Wildcat urges the CNSL Special Committee to stay the course and not direct CNSL toward a full sale or dilutive financing that does not adequately value CNSL's assets. As detailed herein, we firmly believe that the non-binding proposal from Searchlight and BCI significantly undervalues CNSL's equity and that the reserve price of any offer should be no lower than $14.00 per share, a share price which we believe accurately reflects the true fair value of CNSL.
Sincerely,
Tom McConnon
Managing Director, Head of Public Equities
Wildcat Capital Management, LLC
About Wildcat Capital Management
Wildcat was established in 2011 as a single family investment office. The firm has a long term, flexible, family office-driven approach. Wildcat invests in multiple asset classes, including private equity, public equity and real estate.
Media Contact:
Eliza Ruggiero / Abigail Ruck
H/Advisors Abernathy
[email protected]
+1 (212) 371-5999
APPENDIX A
This analysis computes the future state value of CNSL in 5 years following its fiber upgrade project by burdening the valuation for the upgrade and success-based costs. Under this analysis, Wildcat conservatively estimates that CNSL's price per share post upgrade at $28.37, or $14.10 discounted back 5 years at a 15% discount rate.
Key Assumptions:
CNSL: Future State Value | |||||||
Future | |||||||
Current | Change | State (2028) | Notes | ||||
Passings | |||||||
Copper Passings | 1,564,889 | (937,482) | 627,407 | ||||
Fiber Passings | 1,062,518 | 937,482 | 2,000,000 | 2mm target shared by CNSL mgmt - Q4'22 earnings presentation | |||
Total Passings | 2,627,407 | - | 2,627,407 | ||||
Fiber Subscribers | |||||||
Fiber | 135,209 | 664,791 | 800,000 | ||||
Fiber Penetration | 12.7 % | 27.3 % | 40.0 % | 40% target shared by CNSL mgmt - Q4'22 earnings presentation | |||
Upgrade Costs/Passing and Subscriber | |||||||
Cost per Fiber Passing | $650 | Shared by CNSL mgmt - Q4'22 earnings presentation | |||||
Cost to Connect per Subscriber | $750 | Shared by CNSL mgmt - Q4'22 earnings presentation | |||||
Marketing Cost per Subscriber | $400 | Conservative estimate based on industry benchmarking | |||||
Upgrade Costs ($mm) | |||||||
Cost per Fiber Passing | $609 | $650 x 937,482 new fiber passings | |||||
Cost to Connect | $499 | $750 x 664,791 new fiber subscribers | |||||
Marketing Cost | $266 | $450 x 664,791 new fiber subscribers | |||||
Total Upgrade Costs | $1,374 | ||||||
Enterprise Value/Passing | |||||||
EV/Copper Passing | $300 | Low end of $300 to $600 industry standard; see footnote (1) for further triangulation | |||||
EV/Fiber Passing - Terminal (40%+ Penetration) | $3,000 | Low end of $3,000 to $4,000 industry standard; see footnote (2) below for further triangulation | |||||
Enterprise Value ($mm) | |||||||
Commercial & Carrier EV at 1.5x Sales | $852 | Inline with LUMN (1.5x 2023 Revenue) | |||||
Residential Copper EV | $188 | ||||||
Residential Fiber EV | $6,000 | ||||||
Implied Enterprise Value | $7,040 | ||||||
Debt | $2,186 | 3/31/23 CNSL 10Q | |||||
Cash | ($336) | 3/31/23 CNSL 10Q | |||||
Unfunded Pension | $74 | 12/31/22 10K(updated annually) | |||||
Searchlight Preferred | $488 | 3/31/23 CNSL 10Q | |||||
Upgrade and Success-Based Costs | $1,374 | See above--includes passing upgrades, cost to connect, and marketing to reach 40% penetration | |||||
Implied Equity Value | $3,253 | ||||||
Share Price | $28.37 | ||||||
Share Price Discounted 15%/5 Years | $14.10 | ||||||
Vs. $4.00 Non-Binding Offer | 252.6 % | ||||||
(1) Frontier (FYBR) noted $300 to $600 EV/copper passing at their 2021 analyst day | |||||||
(2) Frontier (FYBR) noted $3,000 to $4,000 EV/fiber passing at their 2021 analyst day; Ting raised ABS debt financing at $2,500 debt/fiber passing (before any equity value) in May '23; | |||||||
public cable companies (e.g. CHTR) valued at $2,800 EV/HFC passing (which is an inferior technology to fiber due to higher operating costs and higher maintenance capital expenditures) |
APPENDIX B
This analysis computes CNSL's valuation based on the results of the Apollo/Brightspeed transaction precedent, and then adjusts the valuation for (i) CNSL's existing fiber CapEx spend in 2021-2023 (Apollo/Brightspeed had de minimis fiber at acquisition) and (ii) CNSL's fiber build cost advantage versus its peers while burdening for CNSL's higher cost to connect. To be conservative, this analysis does not give CNSL credit for a number of other factors that should favorably impact valuation relative to Brightspeed. Wildcat conservatively estimates CNSL's price per share based on the most relevant transaction precedent at $13.90.
Key Assumptions:
CNSL: Implied Valuation Using Brightspeed Transactional Comparable $ in MM | |||||||||||||||
Apollo / | CNSL vs. Brightspeed Valuation Adjustments | ||||||||||||||
Searchlight Offer | Brightspeed | Already Spent | CNSL Cost | Adjusted | |||||||||||
for CNSL at $4.00 | Trans. Comp. | Fiber CapEx | Advantage | Valuation | Notes | ||||||||||
Enterprise Value | $2,871 | $7,500 | Source: LUMN | ||||||||||||
Total Passings (Thousands) | 2,627 | 6,500 | Source: Brightspeed press release, 4/4/23 | ||||||||||||
Value/Total Passing ($/passing) | $1,093 | $1,154 | |||||||||||||
Existing Fiber Passings (Thousands) | 1,063 | 290 | Source: LUMN Q3'22 earnings call (November 2022) | ||||||||||||
Target Fiber Passings (Thousands) | 2,000 | 3,000 | Source: Brightspeed press release, 8/22/22 | ||||||||||||
% Fiber - Target | 76.1 % | 46.2 % | |||||||||||||
% Fiber - Existing | 40.4 % | 4.5 % | |||||||||||||
CNSL EV Based on Value/Total Passings ($mm) | $2,871 | $3,032 | $657 | (1) | $318 | (2) | $4,007 | See footnotes (1) and (2) below | |||||||
Debt | $2,186 | $2,186 | $2,186 | 3/31/23 CNSL 10Q | |||||||||||
Cash | ($336) | ($336) | ($336) | 3/31/23 CNSL 10Q | |||||||||||
Unfunded Pension | $74 | $74 | $74 | 12/31/22 10K (updated annually) | |||||||||||
Searchlight Preferred | $488 | $488 | $488 | 3/31/23 CNSL 10Q | |||||||||||
Equity Value ($mm) | $459 | $619 | $657 | $318 | $1,594 | ||||||||||
Value per Share | $4.00 | $5.40 | $5.73 | $2.77 | $13.90 | ||||||||||
Premium vs. $4.00/Share Non-Binding Offer | 35.0 % | 247.5 % | |||||||||||||
(1) 56% of CapEx in 2022 (per CFO); estimated 50% in 2021 and $70mm in Q1'23 | |||||||||||||||
(2)Value of CNSL cost advantage based on Brightspeed targets | |||||||||||||||
ADJUSTMENTS | |||||||||||||||
(1)CNSL Fiber CapEx Already Spent | |||||||||||||||
Existing Fiber CapEx ($mm) | $657 | 56% of CapEx in 2022 (per CFO); estimated 50% in 2021 and $70mm in Q1'23 | |||||||||||||
Value/Total Passing | $250 | Divided by 2,627k CNSL total passings | |||||||||||||
(2)CNSL Net Cost Advantage | |||||||||||||||
Brightspeed Cost to Pass/Fiber Passing | $1,000 | "Similar to peers" - Aaron Sobel (Apollo Partner), November 2021; | |||||||||||||
CNSL Cost to Pass/Fiber Passing | $650 | Shared by mgmt - Q4'22 earnings presentation | |||||||||||||
Delta/Fiber Passing | $350 | ||||||||||||||
Value of CNSL Cost Advantage to Brightspeed ($mm) | $949 | Delta x Brightspeed's target incremental fiber passings | |||||||||||||
Brightspeed Cost to Connect/Subscriber | $600 | Assuming metrics similar to Frontier (FYBR) metrics | |||||||||||||
CNSL Cost to Connect/Subscriber | $750 | Shared by mgmt - Q4'22 earnings presentation | |||||||||||||
Delta/Subscriber | ($150) | ||||||||||||||
Value of CNSL Cost Disadvantage to Brightspeed ($mm) | ($163) | Delta x Brightspeed's incremental fiber x 40% penetration | |||||||||||||
Total Value of Net CNSL Cost Advantage to Brightspeed ($mm) | $786 | Total value if Brightspeed could build/connect as cheaply as CNSL | |||||||||||||
Value/Total Passing | $121 | Divided by 6,500k Brightspeed passings | |||||||||||||
Total Value of Cost Advantage to CNSL Enterprise Value ($mm) | $318 | Value/total passing multipled by 2,627k CNSL passings |
1 Estimated by Wildcat as the sum of 56% of total capital expenditures in 2022 (disclosed by the Company); estimated 50% of total capital expenditures in 2021 and $70 million in Q1'23.
2 Based on data from Bloomberg.
SOURCE Wildcat Capital Management
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