Ex-Charterites Seek Backers3/09/2003 7:00 PM Eastern
Former Charter Communications Inc. chief operating officer Dave Barford and former chief financial officer Kent Kalkwarf, fired from the St. Louis-based MSO in December amid a federal investigation involving some accounting practices, are quietly trying to raise money to start their own cable empire, sources said last week.
Sources within the financial community said both Barford and Kalkwarf are testing the waters to see how much financial support they could get.
"They have talked to a number of people about acquiring cable systems," said one source familiar with the situation, who asked not to be named. "They don't have anything specific in mind. It's been generic conversations."
Kalkwarf did not return phone calls seeking comment.
Barford and Kalkwarf have been making the rounds to several different private-equity companies. Sources said that their list includes former Charter backers Kelso & Co. and Charterhouse Group International.
Kelso declined to comment. Charterhouse president Thomas Dircks did not return phone calls seeking comment.
Joseph Duggan, principal at New York cable investment bank DH Capital LLC, said that while he has no knowledge of Barford and Kalkwarf looking for money, he spoke with Kalkwarf about a month ago, and the former Charter CFO expressed an interest in getting back into cable.
"I have talked to Kent and he's interested in looking at what is around. I don't think that Kent and Barford would be limited in their vision to just cable," said Duggan, adding that other telecommunications investments could be in Kalkwarf's sights.
Pairing makes sense in that Kalkwarf provides financial expertise — he joined Charter in 1995, after 13 years with Arthur Andersen LLP — and Barford brings about 20 years of operating experience at both Charter and Comcast Corp., according to Duggan.
Kelso and Charterhouse were early investors in Charter Communications. Charterhouse recently backed former Charter CEO Jerry Kent's investment company, Cequel III.
"You've got to remember that these guys [Barford and Kalkwarf] had key management spots in a company that Kelso and Charterhouse made a lot of money on," one source in the cable investment community said.
Kalkwarf left Charter under a cloud on Dec. 23, when the MSO said he was terminated following "a review by the company of various matters, including those relating to the previously disclosed grand jury investigation."
Charter had placed Barford on administrative leave in October because of that investigation, and was terminated the same day for the same reasons.
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Neither executive was charged with nor accused of any wrongdoing, sources familiar with the matter said.
Duggan said both Kalkwarf and Barford have good reputations in the cable industry, despite Charter's problems. "People like and trust Kent and found him to be honorable and good to his word and responsive," he said.
Kalkwarf and Barford should be able to overcome any issues associated with Charter that potential backers may have, he added. But others in the cable finance community expressed some doubt about the pair's ability to attract investment.
"Who is going to open their checkbooks to two guys who could be indicted at any time?" asked one member of the financial community, who asked not to be named.
If successful, Barford and Kalkwarf would join the growing ranks of former cable executives returning to the industry. Included are Jerry Kent, who through Cequel III has made a flurry of cable deals in the past few months and Bresnan Communications Inc. president Bill Bresnan; as well as Steve Simmons, Steve Weed and Dan Ryan.
Bresnan recently completed the purchase of about 317,000 subscribers in Montana, Wyoming, Utah and Colorado for an estimated $675 million.
Simmons, former head of Simmons Communications Inc. purchased RCN Corp.'s 80,000-subscriber Princeton, N.J., system earlier this month, for about $289 million.
Weed, a former Millennium Digital Media executive, is said to be close to purchasing Northland Cable Television's Seattle system. And Ryan, a former regional vice president with Charter, has purchased some small systems last year through his new company, Precis Communications.
With all of those former cable executives back in the mix, it would be logical to think the inventory of available cable systems would be low, presenting little opportunity for Barford or Kalkwarf.
But according to several people on the mergers-and-acquisitions side of the cable industry, there are plenty of systems to go around. Some speculate that recently enlarged Comcast Corp. and a reorganized Adelphia Communications Corp. might at some point look to shed systems.
"The market is definitely getting a lot more equity into it," Duggan said. "The inventory comes out when the money comes out."