Mahmoud Wahba, the Egyptian-born businessman who bought the
assets of bankrupt satellite-television provider AlphaStar Television Network Inc. in
November, has emerged as a candidate to buy 178,500-subscriber MSO Buford Television Inc.
Wahba, who said he wants to combine satellite distribution
and rural cable assets, said last week that he submitted a bid on Buford, along with other
potential buyers, about 10 days ago.
Several sources said Donaldson, Lufkin & Jenrette, the
investment bank handling the auction, had whittled the interested parties down to fewer
than a half-dozen bidders, with bids coming in at around $300 million each. Wahba and an
executive at an MSO that also submitted a nonbinding offer, who asked not to be
identified, said their bids were in that range.
The Buford sale is expected to be yet another MSO
transaction that helps to establish valuation benchmarks. A price of $300 million would be
around $1,700 per subscriber, or about nine times estimated 1998 cash flow -- well below
the levels indicated by AT&T Corp.'s acquisition of Tele-Communications Inc. or
Paul Allen's more recent agreement to buy Charter Communications Inc.
But Buford's systems are much smaller than
Charter's, and most executives who considered bids said they would cost a lot to
upgrade. More than one-half of Buford's system capacity is at 330 megahertz or less,
and only 51 of its 261 headends serve more than 1,000 customers.
"It's a daunting task," said one bidder, who
asked not to be named, of the potential expenses involved.
Buford has some attractive qualities, though, in addition
to its raw size. Its systems are well-run, generating an estimated $189 in cash flow per
subscriber this year (rising to $201 next year), despite an average of only about 33
channels of basic and expanded-basic programming. Monthly revenue per subscriber is about
$34, versus the industry average of around $40, according to materials that DLJ prepared
Although the systems are rural, about two-thirds of
Buford's subscribers are within 30 miles of large or midsized markets, such as Dallas
or Houston. Buford also has a 24-hour call center, which it says was designed to be scaled
up to serve 2 million subscribers. One start-up MSO that seriously weighed a bid said the
call center was a big draw.
Other MSOs considered likely to have submitted bids include
Phoenix-based Cable One Inc., which has been actively buying, selling and swapping lately;
St. Louis-based Millennium Digital Media Holdings, a well-financed start-up; and Austin,
Texas-based Classic Cable Inc., which raised $125 million in the public-debt market over
Cable One and Millennium executives declined to comment,
and a Classic Cable executive could not be reached for comment at press time.
Executives at bidding firms said the finalists would begin
doing due-diligence scrutiny of Buford sometime after Labor Day, en route to submitting
final bids sometime this fall.
Greenwich, Conn.-based Wahba said he has been working with
Waller Capital Corp. on a business plan that envisions a 500,000-subscriber MSO with rural
systems, supplied with programming and, potentially, data services from AlphaStar's
uplink facility in Oxford, Conn.
"We always were looking for a niche," Wahba said
of his plans for AlphaStar's second life after it flamed out as a direct-broadcast
satellite competitor to DirecTv Inc., EchoStar Communications Corp. and PrimeStar Inc.
He concluded that a workable niche could be buying rural
systems from buyers that can't afford the upgrades that are needed to be competitive,
then providing the additional programming needed to compete against DBS through
Wahba said he has reached a memorandum-of-understanding
stage to buy several cable systems, and he has even submitted offers to buy larger MSOs
Linking up with satellite providers had already occurred to
Buford's current owners, brothers Bob and Jeff Buford. To work around its low system
capacity, Buford, in addition to spending $41.9 million on upgrades over the last four
years, has been a pioneer in introducing digital television.
Buford was the first non-TCI system to use TCI's
Headend in the Sky service, and it achieved a 12 percent-penetration rate after eight
months of marketing the service in Heath, Texas.
Buford also planned to resell digital-TV service supplied
by PrimeStar under the DBS provider's "Digital Advantage" service. But that
offering is on hold while PrimeStar tries to win government approval to buy high-power
satellite assets from News Corp.