Consolidated Cites Potential BEAD Overbuilding As A Reason To Sell Company

Dec 18, 2023

By Ted Hearn, Editor of Policyband 

Washington, D.C., Dec. 18, 2023 – Consolidated Communications has a number of reasons for selling the company, but one of them isn't exactly a ringing endorsement of the Biden Administration’s signature broadband subsidy program.

Illinois-based Consolidated sent a letter to shareholders today urging approval of the company’s sale to Searchlight Capital and British Columbia Investment Management Corp. (BCI) for $4.70 per share. The company said the sale is needed because it does not have the money to “execute on our original fiber upgrade plan.”

Consolidated also stressed that if the transaction were not approved, the company ran the risk of being overbuilt by entities that receive funding under the Biden Administration’s $42.45 Broadband Equity, Access, and Deployment (BEAD) Program run by the Commerce Department’s National Telecommunications and Information Administration.

“As a standalone company, Consolidated may not have the liquidity to meaningfully participate in the BEAD program, putting the company at a severe competitive disadvantage. Without capital, there is a risk of our competitors winning subsidies and overbuilding our network, thereby jeopardizing our competitive position,” Consolidated’s letter said.

In testimony before Congress, Commerce Secretary Gina Raimondo said she was committed to funding projects aimed at the broadband unserved and that there would be no overbuilding or rate regulation. NITA head Alan Davidson has said BEAD will not fund projects in areas that will be built out using funds from other federal broadband subsidy programs.

On Oct. 18, Consolidated announced the sale to Searchlight and BCI in an all-cash transaction with an enterprise value of approximately $3.1 billion. Wildcat Capital Management – which says it is the fifth-largest independent holder of Consolidated’s stock – announced it will vote against the transaction, saying the company should receive a higher buyout price.

Consolidated said financial pressure was building as a result of “industry-wide declines in voice and access revenue” and “strong competition for broadband subscribers.” The company said its fiber rollout was being hampered by “increased inflationary pressures that directly impact our costs, resulting in higher than expected fiber construction” and "increased interest expense in light of higher interest rates.”

On Jan. 31, 2024, Consolidated is to hold a special meeting of shareholders to consider the proposed sale to Searchlight and BCI.

In urging support for the sale, Consolidated said “the Board believes this offer of $4.70 per share represents the best risk-adjusted outcome for shareholders, particularly in light of the significant risk associated with Consolidated’s prospects as a standalone business.”