This morning, communications firm Cincinnati Bell (CBB 18.00, -1.35 -6.98%) and Honolulu-based Hawaiian Telecom (HCOM 29.45, +5.01 +20.50%) announced an agreement to combine with privately-held OnX Enterprise Solutions. Namely, CBB and HCOM will combine for a total consideration of about $650 million, representing a 23.7% premium to HCOM's trailing 20-day calendar VWAP. CBB will also acquire OnX for a total consideration of about $201 million in cash.
Under the agreement with HCOM, Hawaiian Telcom shareholders will have the option to elect either $30.75 in cash, 1.6305 shares of CBB common stock, or a mix of $18.45 in cash and 0.6522 shares of CBB common stock for each share of HCOM, subject to proration such that the aggregate consideration to be paid to HCOM shareholders will be 60% cash and 40% CBB common stock.
CBB highlighted its commitment to HCOM’s workforce and ensuring that it can meet the needs of its customers today and into the future. Also, due to distance and separate operations, this merger is not expected to materially impact jobs in Hawai'i. In fact, CBB has committed to investing in HCOM’s next-generation fiber network statewide, which will create additional opportunities for growth.
Further, HCOM will continue to be locally managed from Hawai'i and its union labor agreements will be honored. Also, HCOM will have two seats on the combined company Board and these seats will be held by Hawai'i residents, ensuring that Hawai'i is well represented when broader strategic decisions are made.
The acquisition of OnX adds meaningful scale, service offerings, free cash flow generation, and customer diversification to CBB’s IT services business and supports the company's transformation to a Hybrid IT provider. Specifically, the transaction will expand the company's footprint to 20+ IT sales offices and provide access to 50+ data centers through strategic partners, significantly increasing CBB’s presence in the U.S. and Canada.
For a bit of financial background, for the full year 2016, HCOM generated revenue of $393 million and adjusted EBITDA of $116 million. For the fiscal year ended 4/30/17, OnX's revenue was $614 million and adjusted EBITDA was $29 million.
CBB expects the combinations to be accretive to free cash flow per share for CBB shareholders. The company is also targeting run rate combined synergies of about $21 million, substantially all of which will be realized within two years post-close.
The Company anticipates the OnX transaction will close in the beginning of Q4, while the HCOM transaction is expected to close in the second half of 2018. The transactions are not conditioned on each other.