Welcome, Canadian Capital


The U.S. cable industry, for all the increased
competition and agita over programming
costs and youthful cord-cutting, is a proven
money-maker for private investors.

It has even inspired a new influx of Canadian
capital, two centuries after our last war
against the United Kingdom led U.S. troops
to invade Canada, and vice versa.

Pension funds in Canada bankrolled much of
last week’s $6.6 billion buyout of Suddenlink, led
by current chairman and CEO Jerry Kent.

Suddenlink’s well-heeled investors, including
Goldman Sachs, tripled their original $900-million
investment, according to Kent.

Remarkably, that wasn’t the only Canadian-backed cable
deal last week. Montreal-based Cogeco Cable, with
about 870,000 subscribers, is buying 252,000-subscriber
cable operator Atlantic Broadband for $1.36 billion in cash.

In our research, it appears to be the first direct acquisition
of a U.S. cable company by a Canadian cable company
since Rogers sold its U.S. cable holdings in 1988.
Shaw sold its U.S. cable operations in 2003 to buyers including

Cogeco Cable investors weren’t initially impressed by
the acquisition, even though CEO Louis Audet said the
deal would immediately add to earnings per share and
cash flow when it closes later this year.

On an analyst call, Audet was asked why this
deal should work out better than the last time Cogeco
went international. It bought a cable company
in Portugal in 2006 for $656 million, later
selling it for $59 million.

Audet said ABB’s markets and products are
similar to Cogeco’s in Canada, and there will
be some savings in equipment and possibly
programming buys.

The purchase price, he said, was “on the
medium-to-low-side” of recent private-equity
acquisitions of U.S. cable companies.

And ABB’s system upgrades create potential upsides within
existing territories: Digital-video penetration is at 19% of
homes passed versus 36% for U.S. cable companies overall,
he said.

Crucially, while Canada’s cable consolidation is essentially
over, there are ample opportunities to grow with
“tuck-in” acquisitions around ABB service areas.

“This is a wonderful way to enter the U.S. market,”
Audet said.

As longtime Canadian-based journalist James Careless
told me last week: “For Canadians, the U.S. is where you
go to make a living, our market being too small.”

Note to Canadians: Your dollars are welcome here.