TSX Commentary

Shaw Communications
Buying Mountain Cable: Pricey Move Back Into Southern Ontario Is Peculiar

Shaw announced an agreement to acquire Mountain Cablevision in
Hamilton, Ontario. This system, one of the larger independent cable
systems left after a decade of consolidation, has about 41,000 cable
subscribers, 28,000 Internet subscribers, and 27,000 telephone customers.

Although no purchase price was released, the speculation is that the price
paid came to about $300 million in cash and Shaw non-voting shares. This
works out to be around 12x EV/EBITDA and $7,300 per subscriber, which is
not cheap, even from a cable heyday perspective, and dilutive to NAV.

That said, Mountain Cablevision is a well-fibred plant, requiring limited
upgrade capex, which should lead to higher FCF generation in the future.
We also note that Shaw’s Big Pipe fibre network passes through Hamilton,
which will service the system and bring cost savings.

Given Shaw’s focused move out West years ago, this determined foray into
S. Ontario is quite peculiar. It is a very good asset, but Shaw clearly outbid
two more synergistic players (Cogeco Cable / Rogers). While the rich price
is not that big a deal, given it’s size, Shaw’s full motivation raises questions.