As part of its second-quarter earnings results, Knology announced this morning that it had signed a definitive agreement to buy Lawrence, Kan.-based Sunflower Broadband for $165 million.
Knology, which is headquartered in West Point, Ga., was rumored to be interested in buying Sunflower for the past few weeks. This morning's press release said the deal is expected to close in the fourth quarter of this year once it passes the usual closing conditions and regulatory approvals.
Knology said it would fund the deal by using a portion of the cash it has in hand, as well as by accessing capital markets. Knology said that Credit Suisse and SunTrust Robinson Humphrey have committed to providing the required debt capital for its acquisition of Sunflower Broadband.
SunTrust Robinson Humphrey is acting as financial advisor to Knology, and RBC Daniels is acting as financial advisor to Sunflower Broadband.
According to Knology, Sunflower is expected to generate approximately $51 million in revenue and $22 million in EBITDA this year, with synergies expected to be approximately $5 million.
Additional attributes to the deal cited by Knology included:
- Acquisition of a very well-managed business with solid operational and financial metrics
- Maintains Knology's strategic niche, operating in secondary and tertiary markets with favorable demographics and positive economic growth characteristics
- Consistent culture and value system with focus on customers and employees
- Similar hybrid fiber/coax network architecture
- Incumbent cable operator, adding approximately 54,000 homes passed to Knology's existing footprint and approximately 105,000 RGUs to Knology's operations
- Geography offers attractive edge-out possibilities, tack-on acquisition and larger acquisition opportunities, bridging Knology's southeast and upper Midwest footprints
Despite its size of 30,000 cable and phone subscribers, Sunflower Broadband has been an innovator within the cable industry, with early launches of a whole-home DVR solution with Pace, DOCSIS 3.0 tiers and advanced VOD adverting.
Sunflower Broadband COO Patrick Knorr, who is a past president of the American Cable Association, testified before a House subcommittee last year in regard to media conglomerates taking advantage of small cable operators.
Sunflower serves the Lawrence, Eudora and Douglas County areas in Kansas.
Knology posts Q2 profit
As for Knology's second-quarter numbers, the company posted a profit of $7.6 million, or 21 cents per share, which was up from the $1.3 million, or 4 cents per share, a year ago.
Total connections for voice, video and data customers decreased 4,946 during the seasonally slow second quarter, and the company ended the quarter with 698,717 total connections. Video and data connections decreased by 3,743 and 1,382, respectively, while voice connections increased by 179.
Business connections increased by 415 during the period to 107,055 connections, compared with 104,372 business connections one year ago. Average monthly revenue per connection increased to $53.73, compared with $52.65 for the second quarter of 2009. Average monthly connection churn was 2.7 percent in the second quarter of 2010, compared with a churn rate of 2.8 percent for the same period one year ago.
"We are pleased with both the financial and operating results achieved during the second quarter, and we are very excited about the Sunflower transaction and what that transaction will mean to our business on a long-term basis," said Rodger Johnson, chairman and CEO of Knology. "The core business is continuing to perform well in this challenging economic environment, and we continue to experience success with our fill-in investments and wireless backhaul opportunities. We will stay focused on taking care of the customer and working hard to deliver increased shareholder value."