Knology Eyes an IPO

10/05/2003 8:00 PM Eastern

Only about a year after emerging from Chapter 11 bankruptcy protection, cable overbuilder Knology Inc. hopes to test the public markets, filing a prospectus for an initial public offering of stock in hopes of raising $86 million.

Knology's IPO would be the first for a cable operator since Mediacom Communications Corp. raised $380 million in its public offering in 2000.

Knology, which plans to list its stock on the NASDAQ exchange under the symbol "KNOL," did not disclose in the prospectus how many shares it expects to offer the public, nor did it set a price. No official date has been set for the IPO.

Underwriters are UBS Securities LLC, Raymond James & Associates Inc., Robert W. Baird & Co. Inc. and Morgan Keegan & Co. Inc.

Knology's attempt to go public comes at a curious time, with the stock market battered after a slew of accounting scandals. The IPO market, strong during the Internet bubble between 1999 and 2001, had slowed to a trickle.

Recently, IPOs have begun to rebound. According to Forbes, there have been 31 new IPO filings since August — more than four times the seven filings for the first seven months of the year. And those companies that have gone public are maintaining their stock price. New issues have appreciated by an average of 29% this year, Forbes

Knology, which has about 132,000 subscribers in five states, said it expected net proceeds to be about $68 million — $15 million of which would be used to finance its acquisition of GTE Corp.'s former cable systems in Pinellas County, Fla., and Cerritos, Calif., with 57,000 customers. The seller is Verizon New Media Ventures; the deal is expected to close in the fourth quarter.

About $53 million would be used to fund system upgrades.

Knology Broadband Inc., a wholly owned subsidiary of Knology Inc., filed a prepackaged Chapter 11 proceeding in U.S. Bankruptcy Court for the Northern District of Georgia on Sept. 18, 2002, primarily to restructure its debt.

That restructuring, in which Knology reduced its $444 million of bond debt to $195 million for about 19% of its equity, was approved by the court on Oct. 22.

The prospectus says Knology agreed to pay $15 million in cash for the Verizon properties, or about $263 per subscriber — well below the $3,600 per subscriber paid in several recent cable transactions.

That's partly because the Florida systems are overbuilds of Bright House Networks LLC, which acquired the former Time Warner Cable franchises in Central Florida and Tampa Bay. Verizon was the incumbent in Cerritos.

Knology, which operates competitive cable systems in most of its markets, said it would spend about $5 million in 2003 to upgrade the Florida properties, rising to $35 million in 2004. According to sources, those expenditures are mainly to enable the systems to offer telephony service. The systems are already at 750-Megahertz capacity.

Knology — formed by West Point, Ga.-based telecom holding company ITC Holding Co. in 1994 — offers a mixture of circuit-switched and voice-over-Internet protocol telephony in existing markets.

Knology also said it would issue a warrant for about 1 million shares of its common stock to "a prior prospective purchaser" of the Verizon systems for release of its exclusivity rights.

While Knology didn't identify the party, sources said it was GLA New Ventures LLC, a St. Louis-based management group headed by cable veteran Jim Moffit. Moffit had served stints with Brooks Fiber Properties Inc., and Cencom Cable Associates, among others.

In its July press release announcing the Verizon deal, Knology referenced GLA as one of its backers in the deal.

Recent Cable IPOs
Company Date Amount
*Classic is no longer publicly traded.
Source: Company reports
Mediacom Feb. 4, 2000 $380 million
Insight July 21, 1999 $563.5 million
Classic Dec. 8, 1999 $180 million
Charter Nov. 19, 1999 $3.7 billion

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