KeyTech & CellOne To Combine Operations

October 6, 2015

Lloyd FrayKeyTech Limited announced that it has entered into an agreement with Atlantic Tele-Network, Inc. that will allow KeyTech, through Bermuda Digital Communications, Ltd., doing business as CellOne, Logic and its other subsidiaries, to create a full service provider of mobile, fixed and international telecommunication services in Bermuda.

“The transaction will bring together CellOne’s premier mobile services and network with Logic’s [CableVision] brand for broadband Internet, telephone and video services,” the company said.

“As part of the agreement, KeyTech will receive ATN’s shares in CellOne and approximately $42 million in cash. ATN, which has jointly owned and operated CellOne with KeyTech since May 2011, will receive a 51% interest in KeyTech.

“In connection with the proposed transaction, current KeyTech shareholders will receive a one-time special dividend of $0.75 per share, conditioned upon successful completion of the proposed transaction. KeyTech will continue to be listed on the Bermuda Stock Exchange.”

KeyTech CEO Lloyd Fray, said: “KeyTech and ATN, through CellOne, have spent nearly two decades investing in Bermudian infrastructure and services and now, joined under the same umbrella, will be able to invest even more heavily in Bermuda.

“KeyTech’s broad Bermudian shareholder base coupled with ATN’s significant and long-standing investment will help drive economic growth, while its local leadership team will be focused exclusively on delivering the best service and value for customers.”

As part of the proposed transaction, the CellOne shares held by minority shareholders in CellOne will convert into KeyTech shares such that CellOne will become a wholly owned subsidiary of KeyTech.

CellOne founder and Chairman Kurt Eve commented: “Since its start in 1999, CellOne has grown to be the leading mobile carrier in Bermuda, and I’m proud of the work that its employees have done to deliver excellence in service since that time.

“I believe that this is a very good transaction for the shareholders of both BDC and KeyTech and that the combined companies will have significant opportunity to increase growth and value. I look forward to the next chapter in CellOne’s evolution through this combination with KeyTech.”

The company said, “The proposed transaction will offer Bermuda consumers a comprehensive suite of leading residential communication and entertainment services.

“For the business sector, CellOne’s “Best on Island” network coverage will be combined with Logic’s reliable and scalable network infrastructure that enables business grade data solutions such as DIA, MPLS and private leased circuits.

“The combined company will provide Bermuda customers easy access to a full range of advanced services with enhanced product options and result in an operation that is more efficient and better able to offer highly competitive pricing.

“As part of the proposed transaction, the additional capital from ATN will support continued investment in expanding and upgrading the communications infrastructure in Bermuda and the Cayman Islands.

CellOne CEO Frank Amaral commented: “This transaction will offer customers a single provider to meet all of their communications needs and preserve robust competition in Bermuda.

“We have a long history in Bermuda, and through this agreement we’ll be able do even more to amaze and delight customers with our enhanced and innovative product offerings.”

The transaction is subject to customary closing terms and conditions, including, among others, an affirmative vote by KeyTech’s shareholders, the receipt of approval from the Bermuda Regulatory Authority, the Federal Communications Commission, and the Information and Communications Technology Authority of the Cayman Islands and the consent of the Bermuda Stock Exchange to certain transaction matters.

KeyTech will provide more information to shareholders and schedule a date for a meeting of shareholders within 30 days.

BofA Merrill Lynch served as financial advisor and Wakefield Quin Limited and Cleary Gottlieb Steen & Hamilton LLP are acting as legal counsel to ATN. Appleby [Bermuda] Limited is acting as legal counsel to KeyTech.

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Comments (16)

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  1. Lala says:

    That’s quite a dilution for existing shareholders – but I don’t see how KeyTech could have survived without this deal. Note ATN and the “minority shareholders” of CellOne will have 60% of the combined company.

    • Sorry Sir says:

      How KeyTech would have survived? They own the biggest market share in the Bermuda Telecoms industry. They want monopoly status. They want total control over the telecoms market in Bermuda.

      • welllll says:

        The RA has forced this by giving way and allowing Digicel (a 100% non Bermudian company) to gown exponentially into a monopoly.

      • Lois Frederick says:

        Digicel (with BTC) is a much bigger company on an international scale and needs as strong as a competitor as possible. This merger will at least help. Should be interesting to see them battle it out over the next few years.

        • FML says:

          But what does all this say…The prices in Bermuda for Data and phoe services will stay HIGH. As a matter of fact it will grow more expensive as these CEO’s will collect even more revenue with slow A$$ INTERNET and DATA speeds. More of the same to come. BRING ON more competition. LINKBERMUDA PLEASE.

      • match says:

        Digicel has the largest market share since they purchased BTC

  2. Mike says:

    FFS.. just combine all of the media providers in Bermuda so I can give up.

  3. Impressive says:

    The plan is coming together slowly but surely,, ahh the “Tip Toe” effect.. Soon we will have no choices…

  4. red rum says:

    So what next for Wow and TBi?

    • FML says:

      NEWER TECHNOLOGY THROUGH SATELLITE SERVICES will provide competition.

  5. 2MorePlease says:

    From the RAB website:

    “The Regulatory Authority promotes sustainable competition in the telecommunications sector by opening the market for the purpose of enhancing consumer welfare …”

    “to develop effective choice for consumers both business and residential …”

    “…the RA adopts policies that promote the growth of the Bermudian economy in a manner that creates employment and ownership opportunities for the people of Bermuda.”

    So left with just 2 choices, Digicel or Cellone, consumers now have more choices?

  6. swing voter says:

    well, TBI the only locally owned and operated company…..I wonder if they will sell out as well?

    • Loquatz says:

      TBI has overseas investment in it too. I hope they can get investment to become a viable “third force” as Link seems to have gone into hibernation.

  7. Um.... says:

    So more of Bermuda’s assets placed in the hands of a foreign entity. Great job, RAB. We need for companies to get outside investment so that they can reinvest in infrastructure and new services. We don’t need them to be sold to foreign companies. The RA should be promoting this kind of capital investment. Not the selling of the whole industry. But they allowed Digicel to get this big. All they can do now is allow this deal to go through. The RA definitely doesn’t operate from a position of strength. Though I don’t know if they ever did.

    • FML says:

      YOur going to need Foreign investment to compete. Period. But we need to stay in a place/position of control. Their are companies sitting on money but are looking for opportunity for a return on investment. But for those that want that quick turnaround on investment… you need to put them out to pasture. You don’t need them. You need to encourage worthwhile companies that REALLY want to invest in Bermuda and want to contribute to our well being. but you need to look deeper. They are out there mate.

  8. ironic says:

    I have two big questions here: Firstly is CellOne really a company worth more than $120m?

    Hopefully someone else can help me with the math here. Using rounded numbers from publicly available data, and a few assumptions, so may not be exact but probably close enough.

    I assume the pre-announcement share price of ~$2.95 is a fair valuation for KeyTech, as it has been trading around there most of this year. This gives a $43m KT market cap on the 14.56m outstanding shares.

    For this deal the common shareholders of KeyTech get the sum of:
    1) 49% of the $43m existing market value = $21.07m
    2) 49% of the net cash ($42m less spec div of $10.9m) = $31m
    3) 49% of the implied value of ATN holdings of Cell One = XXX (see below)
    4) 100% of $0.75 special dividend = $10.9m (existing shareholders only)

    Then the share dilution occurs, going from ~14.5m to 29.7m outstanding shares.

    In order for the per share value to come in at the existing $2.95, the XXX here (est value of 50% share of ATN CellOne Holdings) has to be $60m, putting the 100% value of CellOne at $120m, at which level this deal adds no value for existing shareholders.

    To be an accretive deal for common shareholders, the value of CellOne must be more than $120m, the excess being primarily to account for complete loss of voting control of the new company. Maybe this is the lifeline that KT needs to stay solvent though. The net cash component of ~$31m will go a long way to satisfy the additional ~$70m of debt taken on last year during the BCL acquisition, and I’m sure a large cash injection was a non-negotiable portion of any potential deals. Note that the interest payable on that loan annually is more than historical earnings, which doesn’t leave much for dividends! Hence the dividend extinction last year, they simply don’t have the earning power to service this huge debt.

    this leads to my second question: is this simply the only way out of a poorly-timed and/or overpriced BCL purchase last year? Have any of these deals really been in the interests of the common shareholder? The common stock price over the last couple years would suggest not.

    A final concern: details of the deal haven’t been announced yet, but for common shareholders I would be particularly concerned if ATN recieves any sort of non common equity in the new company. For example if they get dividend paying pref shares representing 51% of the voting rights of the new company, common shareholders can say goodbye to the prospect of ever receiving a dividend again. Additionally they might be able to force a 100% sale of the new company to another party without even taking it to a vote, depending on KT company bylaws.

    I welcome any corrections or comments!

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