Consolidated Communications Shareholders to Vote on Deal

Consolidated Communications is urging its shareholders to vote in favor of its pending $3.1 billion sales to two private equity firms.

Illinois-based Consolidated has sent shareholders multiple public letters urging them to vote in favor of its pending deal at a special Jan. 31 meeting. The acquisition, announced Oct. 16, would hand over ownership of the telecommunications provider to Searchlight Capital Partners and British Columbia Investment Management Corporation for $4.70 per share.

Searchlight Capital already owns one-third (about 34%) of Consolidated.

Consolidated's board of directors wrote in a letter Tuesday that the acquisition is essential to remove risk from the company as it seeks to innovate.

"Following an extensive and thorough review by a special committee of independent and disinterested members of the Board, the Board strongly believes the $4.70 per share cash offer from Searchlight and BCI is the best risk-adjusted outcome for shareholders, particularly in light of the significant risk associated with Consolidated’s prospects as a standalone public company with limited access to capital," the board wrote.

Consolidated in a Dec. 27 letter stressed that the company faces "significant execution risk" transitioning from copper to fiber solutions.

"We no longer have the liquidity to fund our original growth plan, and time to market is imperative. Those who are first to the market with fiber services will be able to take and maintain a significant market share," the company wrote.

The Jan. 3 letter came a day after investor Charlie Frischer criticized the deal in a public letter to shareholders. Frischer owned about 1.4 million shares with his wife as of last March. He noted that the two proposed buyers would reap the benefits of a $1.8 billion fiber investment that other shareholders helped pay for.

LF Partners' Charlie Frischer

"Given that all stockholders have shared equally in the cost of that investment, why should only Searchlight reap the ultimate benefits of that investment?" Frischer wrote.

He also expressed frustration that Consolidated's special committee to review the deal elected not to solicit other suitors.

"Apparently, the special committee has never heard Wayne Gretzky’s famous reminder that 'you miss 100% of the shots you don’t take,'" Fischer said.

On Nov. 3, Wildcat Capital Management – reporting itself to be Consolidated's fifth largest shareholder – published a letter rallying against the deal. Wildcat managing director Tom McConnon said the $3.1 billion price "dramatically undervalues the company's equity."

Other top shareholders include BlackRock (9.2% stake according to CNN Business) and the Vanguard Group (5.3%).

Consolidated's third-quarter commercial revenue declined from $102 million to $95 million. In addition, its Q3 carrier business revenue declined from $38 million to $36 million. The Nov. 30, 2022, sale of Consolidated's Kansas City operations impacted that number.

The carrier in May 2022 announced that it was divesting its Kansas City business to Alinda Capital Partners (now known as Astatine Investment Partners) for $82 million.

The deal closed Nov. 30, 2022, and the private equity provider now operates the assets as Everfast Fiber.

Channel Considerations

Deals like Searchlight's proposed buy can significantly impact channel partners. For agents and their technology services distributors (TSDs), which earn a monthly commission for the supplier for deals sold, M&A can lead to several financially impactful changes. Some buyers will look to consolidate their partner relationships and put less partner-friendly contracts on the table.

Moreover, M&A can reveal the strength of the agreements that the TSDs have formed with the suppliers. For example, after Lumen divested parts of its ILEC business to what eventually became Brightspeed, partners selling in impacted regions continued to receive payments. That's due to agent protections in the contracts, one source told Channel Futures.

But not all agreements contain such clauses. For that reason, partners need to ask more pointed questions of their TSDs about agent protections.

"I think most agents just assume that all supplier contracts have agent protections. They don't. Don't assume that all acquisitions are the same with private equity," one partner told Channel Futures. "And because of that, TSDs need to be more forthcoming about agreements. We can't hide behind NDAs."