Bonderman's Wildcat seeks to thwart $2.9 bln Consolidated Communications deal

Consolidated Communications Holdings

12/07/2023 16:40

(Adds share price reaction in pargraph 6)
    By Anirban Sen
       NEW YORK, July 12 (Reuters) - Wildcat Capital Management
LLC, which manages the wealth of buyout firm TPG Inc's  TPG.O 
co-founder David Bonderman, has asked Consolidated
Communications Holdings Inc  CNSL.O  to reject an offer to take
the company private for $2.9 billion including debt.
    A non-binding $4-per-share all-cash offer for the broadband
services provider undervalues it by 3.5 times, Wildcat wrote to
Consolidated Communications' board in a July 12 letter that was
reviewed by Reuters.
    Wildcat said it owned 3 million Consolidated Communications
shares, equivalent to about a 2.6% stake.
    The offer was made on April 12 by a consortium led by
private equity firm Searchlight Capital, which owns 34% of
Consolidated Communications.
    Consolidated Communications formed a special committee to
consider the offer later that month but has not provided an
update since. A company spokesperson did not immediately respond
to a request for comment on Wildcat's letter.
     Consolidated Communications shares rose 13% to $4.08 on
Wednesday morning in New York, above the $4-per-share offer
price, indicating that some investors are betting that a higher
bid is now likely.
  
    The April 12 offer represented a 45% premium over
Consolidated Communications' closing price for the previous day
and was equivalent to 8.4 times the company's projected 2023
earnings before interest, taxes, depreciation and amortization
(EBITDA).
    TD Cowen analysts wrote in an April 13 note that they
expected Consolidated Communications to accept the deal given
its capital needs and operational challenges. The proposed
valuation was "good" compared to how the shares of "other copper
fixer-uppers" were trading or have been acquired, they said.
    But Wildcat argues that any deal should not be for less than
$14 per share because the value of Consolidated Communications'
investment in its business has yet to be realized. It said the
Mattoon, Illinois-based company should be valued on its assets
rather than its current cash flow.
    "In our opinion, this is the worst time for (the company) to
contemplate a strategic transaction, as its EBITDA and free cash
flow are temporarily depressed as a result of the massive
capital expenditures being incurred in connection with the fiber
upgrades, while the incremental revenues and EBITDA from the
fiber build have yet to be realized," Tom McConnon, head of
Wildcat's public equities arm, wrote in the letter.
    Wildcat added that Apollo Global Management Inc's  APO.N 
$7.5 billion acquisition last year of telecoms firm Lumen
Technologies Inc's  LUMN.N  operations in 20 states support its
valuation estimates, adjusting for Consolidated Communications'
investment in its infrastructure and cost advantage.
    "We are not activist investors but have concluded, somewhat
reluctantly, that at this juncture it is in the best interests
of all shareholders for us to also make our views publicly
known," McConnon said in the letter.
    This is not Wildcat's first stab at shareholder activism. In
2016, Wildcat called on biotechnology company Sorrento
Therapeutics Inc  SRNEQ.PK  to drop a financing deal and replace
its chief executive. When its calls were not heeded, Wildcat
sued Sorrento, alleging breaches of fiduciary duty, and
requested access to its records.
    The two sides settled their dispute in 2017.

(Reporting by Anirban Sen in New York; Editing by Greg
Roumeliotis, Edwina Gibbs and Jonathan Oatis)
((mailto:Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno;
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