Wildcat Capital Management, a top shareholder in Consolidated Communications Holdings (CNSL.O), said on Friday it plans to vote against its $3.1 billion takeover by an investor consortium, as it undervalues the broadband services provider.
Wildcat, which owns about 3 million shares and is the fifth-largest shareholder in Consolidated Communications, said in a letter to the Mattoon, Illinois-based company's board that it believes a value of at least $4 billion, including debt, would be meritied. This would represent a nearly 30% premium to the deal price of $4.70 per share.
"Wildcat continues to believe in the strategic value of the assets assembled by CNSL and the Company's strong potential as a standalone entity, and called for CNSL to terminate the agreement if a higher price cannot be negotiated," Tom McConnon, head of Wildcat's public equities arm, wrote in the letter, a copy of which Reuters has seen.
In October, Consolidated Communications agreed to be bought by an investor group comprising Searchlight Capital Partners And British Columbia Investment Management Corp, months after the group had first submitted an offer to buy the company. Reuters reported in July that Wildcat asked Consolidated Communications to reject the offer.
Consolidated Communications did not immediately respond to a request for comment.
Wildcat argued that mature fiber and cable operators have historically been valued at 10 to 15 times earnings before interest, taxes, depreciation and amortization (EBITDA) by acquirers, whereas Consolidated Communications' take-private deal valued the company at about six times of cash flow.
Wildcat also argued the debt market for fiber assets has become more attractive this year and mature fiber businesses can be levered to about 8.5 times annual revenue growth rates, adding that Frontier Communications' recent debt deal support its valuation estimates of nearly $4 billion, or $10.70 per share.
"We believe that the vast majority of CNSL's normalized EBITDA is residential fiber-to-the-home or commercial fiber, not legacy voice," McConnon said.
