After months of searching, Allegiance Communications Inc. has purchased a substantial block of cable systems in the Southwest — a buy the company hopes will be the building block for bigger things to come.
Allegiance — the partnership between Buford Media Group LLC and New York private-equity firm Wicks Group of Cos. — agreed to acquire 54,000 subscribers in Oklahoma, Kansas, Texas and Arkansas from Cox Communications Inc. for an undisclosed sum. The deal is expected to close in the first quarter of 2004.
Denver-based cable investment banker Daniels & Associates is representing Cox in the transaction.
While terms of the deal were not disclosed, given the average price of small-market cable systems of between $1,000 and $2,000 per subscriber, the deal could be worth between $54 million and $108 million.
The deal is the first major system acquisition for Buford, which currently has about 6,500 subscribers in Arkansas. Buford Media was formed by former Buford Television Inc. CEO Ben Hooks and chairman Jeff Buford after they sold Buford Television to Classic Communications Inc. in 1999 for about $300 million.
Hooks had been hunting for cable properties ever since, and came close on a few occasions. In 2002 Buford Media signed a letter of intent to acquire Alliance Communications, but negotiations broke down over price.
Cequel III, the St. Louis-based investment company headed by former Charter Communications Inc. CEO Jerry Kent, agreed to purchase Alliance's 81,000 subscribers earlier this year for $81 million.
In an interview, Hooks said that part of the reason for the delay is that he has been looking for a property with at least 50,000 subscribers.
"We haven't had much to choose from," Hooks said.
He added that Allegiance's goal is to reach between 200,000 and 300,000 subscribers, mainly by filling out clusters from the Cox purchase.
While the systems — formerly owned by TCA Cable Inc., which Cox purchased in 1999 — weren't clustered enough for Cox, Hooks said there is ample opportunity to consolidate headends and make the operations more efficient. He added that his largest system is in McAlester, Okla., with about 7,000 subscribers. His smallest system, in contrast, has between 100 and 150 subscribers.
Hooks said the plan is to begin upgrades on all but about 6,000 subscriber immediately. Dan Kortick, a principal in Wicks Group, said the cost of upgrades is estimated to be about $200 per subscriber, or between $8 million and $10 million.
Hooks said that about 28% of the subscriber base in his new systems are at 550-megahertz capacity or higher. The rest, although at between 300 MHz and 330 MHz, has access to digital cable through Comcast Corp.'s HITS2Home service, he said. He added that he eventually would like to move subscribers off the HITS2Home platform onto a headend-based digital service.
Kortick said Allegiance is talking to a handful of banks about additional financing, and should have it all in place well before the deal's anticipated closing in March.
Hooks said that he first began talking to Wicks in May at the National Show, about the time that he began talking to Cox about the properties.
"I'm excited," Hooks said. "This is a group I want to grow with."
Wicks has about $400 million to invest and is raising money for an additional fund. Kortick said that there is ample money to help finance Buford and its expansion plans.
Wicks has primarily concentrated on radio and television broadcasting and newspapers in its investments in the past, and has never invested in cable.
"One of the things that is happening in cable and especially rural cable is technology is more readily available, which now allows folks like us to bring the high-speed data product to markets that used to not be able to have that type of product and do it cost effectively," Kortick said. "A lot of these markets don't have a high-speed alternative, some of them don't have a local dial-up alternative."