News

Knology Has Gone Public, Raising $56M After Reorg

1/18/2004 7:00 PM Eastern

Almost one month after completing its initial public offering — and raising about $56 million — Knology Inc. is expected to be on the prowl to acquire small telephone and cable operations within its operating region.

Knology went public on Dec. 18, offering 6.9 million shares (including underwriter overallotments) — about 29% of its 23.7 million shares outstanding — at $9 each, raising about $56 million.

The offering was less than originally expected: Knology had first said it wanted to raise $86 million in the IPO, suggesting an offering price of about $14 per share.

However, the West Point, Ga.-based overbuilder amended those plans, setting an offering price of between $9 and $11 per share in a prospectus filed with the Securities and Exchange Commission on Dec. 18. Underwriters for the offering were UBS Securities LLC, Raymond James & Associates, Robert W. Baird & Co. and Morgan, Keegan & Co. Inc.

EARMARKED FUNDING

Knology stock has appreciated quickly since the IPO. On Jan. 14, the stock closed at $10.15 per share, about 12.8% or $1.15 per share higher than its IPO price.

Knology had planned to use about $17 million of the IPO proceeds for its previously announced purchase of Verizon Media Inc.'s cable systems in Pinellas County, Fla. and Cerritos, Calif. Knology completed the Pinellas County acquisition on Dec. 31 and the Cerritos deal on Dec. 1.

According to the Dec. 18 prospectus, Knology would use $31 million of the IPO proceeds to fund capital expenditures and operations for the Pinellas County systems, with the rest used for general corporate purposes.

Knology chief financial officer Rob Mills said that is still in the cards, adding that the bulk of the operations money will be used to bring telephony service — a mix of circuit-switched and voice-over-Internet-protocol service — to Pinellas County.

Mills said that Knology is focusing on integrating the new properties, but added that the company also is open to acquisitions.

Mills said that Knology has no specific acquisition target in mind now, but with the IPO complete, the overbuilder has a new weapon in the acquisitions arsenal.

"That's always a possibility," Mills said of acquisitions. "[Pinellas County and Cerritos] is the sixth acquisition we've made over the last seven or eight years. Having a public currency aids in that effort."

Knology currently has about 133,000 subscribers in Huntsville and Montgomery, Ala.; Panama City, Fla.; Augusta, Columbus and West Point, Ga.; Charleston, S.C.; and Knoxville, Tenn. The addition of the 60,000 customers from Verizon Media pushed Knology's total subscriber count to 193,000.

Knology was formed in 1994 by ITC Holding Company, Inc., a telecommunications holding company in West Point, Ga., before later branching out to provide video and data services to customers. Acquiring more CLECs is not out of character, since that's how the company grew in the first place.

"I think that within their region, they are interested in a number of telecommunications kind of investments," said DH Capital Inc. principal Joe Duggan. "I think they feel they have a handle on the overbuilder side and they do a good job at it, and they obviously know the telecom business. Within their region, I think they are looking at a lot of different things."

Because Knology operates mainly in the southern U.S., Duggan said that it is a possibility that it may eventually sell the Cerritos system.

Mills said that no decisions have been made on the Cerritos system, which has about 8,000 subscribers, yet.

"It's a nice little property that is generating positive cash," Mills said. "We can operate it pretty well on a standalone basis. We may consider trading it or selling it as well. We've haven't made any commitments one way or the other yet in that area."

USED CHAPTER 11

The IPO came a little more than one year after Knology filed for Chapter 11 bankruptcy protection in Georgia in late September, and emerging about a month later.

The reorganization involved issuing $193.7 million in new bonds to replace $444 million in old notes issued in 1997 to finance rebuilds. Bondholders also received about 20% of equity in the new company to make up the difference.

The Knology bankruptcy was mainly a debt-restructuring vehicle; the company had never missed an interest payment on its debt and had been paying its bills. In fact, Knology has been performing well.

In the third quarter ended Sept. 30, revenue increased 21% to $43.7 million from $36.1 million in the prior year. Cash flow was $8.7 million in the quarter, a 61% increase over the $5.4 million reported in 2002.

In addition to that healthy performance, Knology is backed by some deep-pocketed investors. Aside from chairman and founder Campbell Lanier III — who founded ITC Telecom and was an early investor in Internet service provider MindSpring (now EarthLink Inc.) — Knology's biggest backers are SCANA Communications Holdings Inc., a subsidiary of energy concern SCANA Corp., and private-equity investors The Blackstone Group and Whitney & Co.

According to its final prospectus filed with the SEC Dec. 18, SCANA Communications is Knology's largest shareholder with 12.5% of its outstanding voting stock, followed by Whitney and Blackstone with 7.7% and 5.9%, respectively. Lanier and his family own 6.3% equity in Knology.

Knology is headed by telecom industry veteran Rodger Johnson, its president and CEO since 1999. Prior to that, he was president and CEO of Communications Central Inc., a provider of pay telephone services.

Knology By Numbers
Market Capitalization $240.6 million
Source: Company reports
Cable Television Subscribers 133,267
Telephone Subscribers 123,488
High-Speed Data Subscribers 62,276