Wholesaler CityFibre has agreed to acquire KCom’s national network infrastructure for £90m as it bids to challenge the dominance of BT-owned Openreach.
Wholesaler CityFibre (AIM:
In parallel with the transaction, CityFibre has instructed FinnCap and Liberum
CityFibre will also draw down £35m (US$53m) of its new £100m (US$152m) debt facilities arranged by EY to pay the consideration.
Under the rules of the AIM market, the agreement constitutes a reverse takeover and is thus subject to approval by the buyer’s shareholders. CityFibre’s share price – which fell more than 11% in the wake of the news – gives it a market capitalisation of £62.7m (US$95m).
CityFibre will get 1,100km of metro network assets and a 1,100km national long distance network connected to data centres and peering points. Equity analysts at Liberum said that this effectively doubles the size of CityFibre’s network.
The company’s directors believe the acquisition of the network represents a 45% discount to building its own comparative network.
Greg Mesch, CityFibre CEO, noted that the deal would mean its fibre network would now cover 36 cities across the UK for use by service providers and mobile operators.
“We are pleased to announce this transformational acquisition, which we believe will accelerate our growth target by five to seven years, creating a credible alternative to BT Openreach across the UK,” Mesch said.
“Furthermore, we are delighted to have received the support of our existing shareholders to fund this transaction, and we welcome new shareholders to the register.”
The deal will close in January providing CityFibre shareholders approve the transaction. Speaking to TelecomFinance a few months ago, CityFibre CFO Terry Hart listed KCom as a company where there was an opportunity to collaborate, but stayed schtum on any takeover talk. Hart did say, however, that CityFibre was “open to selective acquisitions if the assets and revenue model match our criteria”.
KCom cuts debt
KCom plans to use the £90m cash proceeds to reduce its net debt and has entered into a partial leaseback agreement to support its current business. It will pay CityFibre £4m (US$6.1m) net per annum for five years, with the option to extend to up to 15 years.
Oakley Capital provided KCom with financial advice while Addleshaw Goddard was its legal adviser.
Commenting on the sale, KCom CEO Bill Halbert said it unlocked value of an “under-utilised asset, built more than ten years ago and which is no longer core to our strategy”.
Halbert said the proceeds would allow it to increase its investment without the need to materially increase its indebtedness. The company’s share price rose more than 3% in the wake of the announcement.
KCom will retain its networks in Hull and East Yorkshire where it has a consumer and enterprise business. The company will also continue to offer a variety of IT and network solutions.
