When the dust settles after Paul G. Allen's latest flurry
of cable operator acquisitions, his Charter Communications will add the equivalent of a
Based on three of the five recent deals, it will probably
cost him around $3.6 billion.
Allen's latest deal, announced last Wednesday, was to buy
out Renaissance Media Group LLC's systems with 127,000 subscribers for $459 million. It
would swell Charter to about 3.4 million subscribers, possibly enough for sixth place on
the domestic MSO list.
The Renaissance deal terms weren't disclosed. But a
document outlining the upcoming $3 billion private high-yield bond offering by Charter
revealed the price, which is the equivalent of about $3,600 per subscriber. The deal also
works out to about 16.4 times Renaissance's $28 million in cash flow last year.
According to the bond sale's offering circular, Charter has
agreed to pay $1.2 billion for 365,000 subscribers in three recently announced deals,
averaging about $3,300 per subscriber.
In addition to Renaissance, those deals, in definitive
agreement stage, were $500 million for 170,000 subscribers from Greater Media Cablevision
Inc. and $240 million for 68,000 subscribers from American Cable Entertainment Inc.
Charter's other recent deals, in letter of intent form,
would add 262,000 subscribers in a deal involving InterMedia Partners and 464,000 from
Rifkin & Associates. Prices for those acquisitions were not disclosed in the document.
But if all five deals averaged $3,300 per subscriber, the
total would run around $3.6 billion for 1.1 million subscribers.
In a sign of the times for sellers that were clever enough
to buy before the current boom, a source said Renaissance's backers, Morgan Stanley Dean
Witter Capital Partners, more than doubled an equity investment of about $100 million in
Renaissance. Morgan Stanley and Waller Capital Corp. advised Renaissance.
Renaissance, which is partly owned and run by six former
Cablevision Industries Inc. executives, closed its first and only system acquisition in
April 1998, buying former CVI systems in the Southeast from Time Warner Cable.
Those systems, in places like Jackson, Tenn., and St.
Tammany, La., fit well with existing Charter operations.
"It's 100 percent strategic," a Charter executive
said. "It's a great deal for us."
The Charter executive, who did not want to be named, noted
that many of the recent deals were for systems Charter had negotiated for, or had at least
wanted to buy on several occasions over the years, but were unable to before billionaire
Allen acquired the company. Allen owns 96 percent of Charter's equity, with the rest owned
by Charter founders Jerald Kent, Barry Babcock and Howard Wood.
Last year, Charter had $1.1 billion in revenue and $482
million in cash flow, according to the bond document in pro forma results that take his
1998 purchase of Marcus Cable into account.
Including pending acquisitions, Charter intends to spend $1
billion over the next three years upgrading its systems. Currently, about 55 percent of
Charter's subscribers are served by 550 megahertz capacity or more, and 37 percent have
access to two-way plant. By the end of 2001, 92 percent of Charter's customers should be
passed by two-way, 550 MHz plant.
The bond offering is to replace existing Charter and Marcus
bonds, for which Charter has made tender offers, and to fund ongoing capital expenses and
make further acquisitions. It has a laundry list of Wall Street managers, led by Goldman
Sachs International, Chase Securities Inc. and Donaldson, Lufkin & Jenrette. Nine
other investment banks also are named as managers.
Charter said it is also looking to refinance existing bank