"Suddenlink is the seventh-largest operator in the U.S., operating in lower density cities and the leading operator in each of its core markets," the CPPIB said Thursday.
"As well, companies in this industry tend to generate fairly strong and predictable cash flows, which aligns with CPPIB's long-term investment goals," the board said in a statement.
CPPIB said it will be working with European private equity firm BC Partners and members of the cable operator's management team to acquire Suddenlink Communications, which is run by Cequel Communications Holdings LLC.
The deal was announced late Wednesday, the same day Canadian cable provider Cogeco Cable Inc. (TSX:CCA) said it was buying the 14th largest cable operator in the U.S., Atlantic Broadband, in a $1.36 billion deal.
The acquisitions of cable companies providing TV service, Internet and telephone services may be seen as stable investments for services that consumers want and need.
CPPIB likes to invest in safer sectors such as utilities and infrastructure, where it can generate incremental growth over many years.
And while the big institutional investor — which invests the contributions to the Canada Pension Plan not immediately needed to pay out to retirees — has a track record of cautious and profitable investments, Cogeco shareholders punished the company for its similar move into the U.S. cable business.
It's the first big acquisition for Canada's fourth-largest cable TV company since its failed venture into Portugal. Analysts noted that much of the billion-dollar foray into the U.S. would be funded with debt.
Cogeco — which operates primarily in Ontario and Quebec — said its acquisition gives it a presence in five eastern states stretching from Pennsylvania to Florida and a platform for expansion in the United States.
But Canadian telecommunications companies that have ventured into the U.S. have so far not met with much success.
Both Rogers (TSX:RCI.B) and Shaw (TSX:SJR.B) — now Canada's two largest cable companies — made attempts at different times several years ago, but later withdrew.
In the Suddenlink acquisition, CPPIB and BC Partners will equally own the majority of the company and Suddenlink's management will own the balance.
The deal includes $1.99 billion of total equity to be invested by CPPIB, BC Partners and certain members of Suddenlink management.
It also includes incremental debt of $500 million and the assumption of existing net liabilities of $4.09 billion as of March 31 this year.
Suddenlink offers television, high-speed Internet and telephony services to over 1.4 million residential and commercial customers, primarily in Texas, West Virginia, North Carolina, Oklahoma, Arkansas and Louisiana.
Its network covers three million homes.
The company said its new partners would help it continue to grow.
"This agreement will allow us to continue to invest in our infrastructure, new technology, and most importantly, our people,'' Suddenlink's chairman and CEO Jerry Kent said in a statement.