Insight Close to Selling Out6/22/2007 8:05 PM Eastern
Insight Communications, having recently agreed to transfer half its subscribers to Comcast, could be close to a deal to sell the remaining portion of the company for as much as $3 billion.
Insight is in the middle stages of an auction for its 639,000 subscribers in Kentucky (Louisville, Lexington, Bowling Green and Covington), Evansville, Ind., and Columbus, Ohio, according to cable-industry executives.
The bidding process is confidential, so executives at companies involved cannot comment on it publicly. According to cable executives familiar with the auction, though, the deadline for parties that placed initial bids to be told if they made the second round of bidding was earlier this month.
EQUITY FIRM ACTION
Parties close to the auction said early bidding was dominated by private-equity players, and prices at that stage were described as “well north” of $4,000 per subscriber. The bids could be closer to $5,000 per subscriber, or about $3 billion, these parties said.
Likely bidders include Providence Equity Partners, a longtime cable investor and owner of international cable assets; Spectrum Equity Investors, which recently sold its interest in Patriot Media for a healthy profit; and Blackstone Group, a longtime cable investor, according to these parties.
Insight CEO Michael Willner did not return calls for comment. JP Morgan and Waller Capital are advising Insight.
One operator that is a likely participant is overbuilder WideOpenWest, which has operations in Columbus, Ohio, and Evanston, Ill., and is flush with cash after its purchase last year by Avista Capital Partners.
A possible participant is Suddenlink Communications. The St. Louis-based cable operator, headed by cable veteran Jerry Kent, has also expressed a desire to get bigger and has been an active participant in past auctions.
One early participant that has dropped out of the bidding is telco Cincinnati Bell, which provides phone and high-speed Internet and resells DirecTV satellite-television service in Ohio and Northern Kentucky. According to a report in the Cincinnati Enquirer last Friday, Cincinnati Bell CEO Jack Cassidy told investors and analysts that the telco took a hard look at Insight, but balked because prices for the systems were “beyond my means.”
Insight has repeatedly been described as being a good fit for Time Warner Cable. And Time Warner Inc. chairman and CEO Richard Parsons has expressed a desire to expand the company's cable footprint.
But individuals close to the auction said Time Warner Cable did not participate in the early bidding. At press time, that could not be confirmed.
Time Warner Cable might be constrained by tax consequences from doing a deal at this time. It split off from Time Warner Inc. as a separate, publicly owned company in March and, according to some analysts, needs to wait at least one year after that date before it can issue more shares.
Sanford Bernstein cable and satellite analyst Craig Moffett said it shouldn't surprise anyone if Time Warner Cable doesn't bid on Insight.
“I'm sure they took a good, hard look at it,” Moffett said. “But they have plenty of integration issues on their plate now with Adelphia. It's not like Insight changes their strategic scale one iota.”
Time Warner Cable could, however, use its programming discounts to make Insight's operation more profitable than private-equity buyers could. Currently, Insight buys programming under Comcast's agreements. That changes after the Comcast deal closes or the systems are sold, whichever comes first.
Insight had said in the past about 60% of its programming deals come through Comcast.
On the other hand, private-equity buyers could add debt onto Insight and recoup some of their equity investment. Insight now carries about $1.3 billion in debt — about five times 2006 cash flow. One cable executive, who asked not to be named, said a private-equity player could nearly double that debt load.
A buyer could also look to “flip” the systems to Time Warner later, enhancing the value now.
COMCAST DEAL TIMING
In April, Insight agreed to transfer 684,000 customers in Illinois and Indiana to Comcast. Comcast owns 50% of Insight — acquired from AT&T Broadband — and opted to dissolve the partnership. That deal is expected to close this year.
Insight could at least announce a deal to sell the remaining half of the company before then.
Executives in the cable industry with knowledge of the auction said a deal could be announced before the end of the summer.
|Source: Insight 2006 10-K annual report.|
|Bowling Green, Ky.||40,200||26,000|