Centennial Sells Its Puerto Rico Subscribers

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Centennial Communications Corp. cut a deal last week to sell its on-the-block Puerto Rico cable systems to private equity firm Hicks, Muse, Tate & Furst for $155 million in cash.

The systems, in and around the resort communities Ponce, Aguadilla, San German and Mayaguez, have about 73,000 subscribers, putting the valuation of the systems at about $2,100 per customer. The deal is expected to close in early 2005; Waller Capital Corp. advised Centennial.

SOLD AT LOSS

Centennial appears to have sold the Puerto Rico properties at a substantial loss. The Wall, N.J.-based telephone company originally acquired the Puerto Rico systems in two separate deals, buying 55,000 subscribers from Pegasus Communications Corp. for $170 million in cash in 2000 and 37,000 from Teleponce Cable TV Inc. for $107 million in 2001.

The systems, which pass more than 300,000 homes, are considered upgraded at 450-Megahertz capacity and are two-way and digital- and high-speed-data-capable.

Centennial has already tried to sell the systems, hiring Morgan Stanley Dean Witter & Co. in April 2002 to seek a buyer, but couldn’t find one at an acceptable price.

Adelphia Communications Corp. is the largest cable operator in Puerto Rico, with about 147,000 subscribers in and around San Juan. A group led by former FrontierVision Partners CEO James Vaughn made an unsolicited $625 million bid for those systems earlier this year.

Adelphia, now in Chapter 11 bankruptcy, is in the process of possibly auctioning off the entire company.

Otherwise, Liberty Media International has about 120,000 subscribers in 37 municipalities in the eastern, central and northern regions of the island.

Hicks, Muse partner Peter Brodsky said the initial focus will be on stepping up marketing and customer service at the Centennial systems.

“We’re buying the company predicated on keeping it independent, adding value where we feel we can add and, then when our value-add is done, looking to exit,” he said.

ROLLUP COMING?

But consolidating the island has its appeals, he said.

“Obviously it’s very, very attractive to consolidate systems. If you consolidate headends, there would be a tremendous amount of synergy either between two or among all three of those companies. We will remain opportunistic about that, either as a buyer or a seller. But our plan is to put our heads down, operate the company, provide the best service we can to our customers and try and create value that way. If some other opportunities come across our desks, we will definitely explore those.”

Centennial launched high-speed service recently and has about 5,000 customers for that service. “We believe the demographics in our area of Puerto Rico will be very interested in having the high-speed data product, based on our experience in other economies,” Brodsky said.

Hicks, Muse has stakes in other cable systems in Latin America, including Argentina, Venezuela and Brazil.

The Centennial systems have lost about 20,000 subscribers since 2000, but Brodsky said that’s not expected to continue.

An all-digital conversion a few years ago caused the company to lose some subscribers during early construction efforts — but those customers could come back with a renewed marketing effort.

“We don’t think that this third of the island is substantially different from the other third,” Brodsky said.

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