Cabletel drops Allied acquisition, looks for other growth opportunities

Cabletel Communications, Canada’s largest telecommunications equipment distributor, dropped two explosive pieces of news on shareholders while announcing second quarter results today, saying it was backing away from one acquisition as it continues to look for an acquisition, merger or even company sale that would enable it to measurably increase in size.

Cabletel said it was backing away from the acquisition of Allied Wire and Cable, another Canadian distributor, and taking a $604,809 [Canadian] charge for debts owed by Allied. Additionally, Cabletel wrote off Allied’s current receivables of $99,273.

The write-offs created a second quarter net loss of $674,154, compared to a net loss of $91,906 for the previous three months. This contributed to a 9 cents per share loss for the quarter, compared to a 1 cent per share loos for the previous three months.

The Allied write down came after Cabeltel conceded it would not buy the firm and that it would not recoup a credit advance it had proffered when it appeared the two companies would merge.

“In this case, it didn’t really matter to us because we were going to own the company; it was just support,” said Greg Walling, Cabletel’s president and CEO. “Then the transaction slowed down and we ended up with an accounts receivable in that amount of money and Allied was put in the position not to pay it back in a timely manner.”

Also yesterday, Cabletel said it had hired Price Waterhouse Securities to analyze options going forward. In this instance, Walling said Cabletel is in the market to grow.

At least part of the decision is predicated on the changing consolidation among Cabletel’s customers.

“Cabletel, as little as five years ago, had somewhere between 200 and 400 active accounts,” said Walling. “With the continued consolidation in the cable industry, we still have as many accounts, but we only have like five to eight major customers. I think it’s natural to think that the distribution industry has to go through the same period of consolidation.”

That means, he said, Cabletel must “structurally change. We can no longer be a $60 million to $70 million Canadian company,” Walling said. “We are analyzing the best ways right now to structurally change the company so it is more suited to being public.”

In March 2001, that change was expected to be the purchase of Allied. That deal, which would have cost about $7 million, is small compared to what Cabletel is looking at with Price Waterhouse and that’s one reason why Cabletel is backing away.

“The board and management believe that the effort, versus doing a major transaction, was not worthwhile at the time. We’re looking to do a big deal one way or the other that enhances the shareholder value,” Walling said.

He did not dismiss the possibility that this could result in Cabletel’s sale.

“Everything has a price, so I would never say Cabletel wouldn’t be for sale,” he said.

Cabletel’s business, Walling emphasized, is strong. It’s Stirling manufacturing business is acquiring customers internationally for both cable and satellite providers and the distribution business sales are up 9%. The company also entered into a new revolving credit facility with LaSalle Business Credit, a subsidiary of Chicago-based LaSalle Bank.

“Given the overall market malaise, the fact that Cabletel re-banked is a very good sign of the company’s ongoing operation,” Walling said.

Nonetheless, he emphasized, “We do not want to mislead you. This is a very difficult time. Three of our major customers are in shutdown mode. But we have smaller customers and two of our larger customers are very busy supporting the company right now.

“Every day it is tough for sales at Cabletel, but our team is coming to the plate and providing the necessary effort,” he said.