Canada's Cogeco Cable is expanding into the United States with a $1.36 Billion acquisition (Cogeco Cable Buying Atlantic Broadband to Expand in U.S. - Bloomberg). The Canadian cable operator, centred in Ontario and Quebec, will be buying Atlantic Broadband of the North-Eastern United States.
The purchase of Atlantic Broadband by Cogeco represents Cogeco's second ambitious move beyond Canada's borders. Cogeco's previous foray outside of the country was into Portugal with the purchase of Cabovisao- Televisao por Cabo SA. The company's European expansion strategy cost Cogeco $600 million and has been a disaster, bleeding the company of almost $250 million last year.
An expansion into the United States is another risky move, and one which shareholders punished Cogeco for today, sending shares down 15% during trading. The United States is a highly competitive market, with large players such as Time Warner willing to spend a lot of money to maintain customers. However, Atlantic Broadband does make a profit, and Cogeco paid 8.3 times estimated annual earnings before interest, taxes, depreciation and amortization for the company.
If you are a Cogeco shareholder, this is definitely a wait and see moment. Selling after today's decline would be rash and unwise, as Atlantic Broadband is a profitable concern in a stable market. The expansion into Portugal has failed so far, but the current European climate is not conducive to a lot of businesses. So wait and see with this one... Cogeco might actually be utilizing some of its strengths by entering a market so close to its home turf.
Cheers Intelligent Investors.
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