Charter Snags Bresnan, Moves Up to 6.2M Subs

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Microsoft Corp. cofounder Paul Allen's Charter
Communications continues to gobble up cable properties, this time winning the auction for
Bresnan Communications for $3.1 billion in cash, stock and assumed debt.

The deal for Bresnan's 690,000 subscribers propels Charter
to No. 4 on the U.S. MSO list, with 6.2 million subscribers after various deals close.

This is probably one of Charter's last big deals make
before attempting an eagerly awaited initial public offering of stock, which many analysts
expect to come later this year.

"Maybe this allows [Allen] to do his public
thing," SG Cowen Securities Corp. analyst Gary Farber said. "The amazing thing
is that almost all of his [past] deals have been in cash."

Going public would give Charter stock to use as deal
currency and ease the drain on Allen's personal fortune, which has been estimated at
between $25 billion and $30 billion, mostly from Microsoft stock.

The deal also allows AT&T Corp., which owns 50 percent
of Bresnan, to continue its plan to divest cable partnerships inherited through its March
acquisition of Tele-Communications Inc. Other stakeholders include chairman William
Bresnan and affiliates (10 percent) and Blackstone Capital Partners III (40 percent).

AT&T chairman C. Michael Armstrong has told analysts
that he would be willing to divest most cable-partnership stakes, but he wants to hang on
to stakes in Insight Communications Co., Cablevision Systems Corp. and Time Warner
Entertainment. AT&T would get 25 percent of TWE after its closes a deal to buy
MediaOne Group Inc.

AT&T apparently wants to concentrate about 90 percent
of its subscriber base in the top 25 markets in the country.

Along those lines, AT&T recently invested $97.5 million
in InterMedia Capital Partners, a subsidiary of San Francisco-based InterMedia Partners.
InterMedia will use the cash infusion to redeem about 30 percent of its 11.25 percent
bonds due 2006.

Several industry observers believe the AT&T investment
is the precursor to AT&T selling off its 49.6 percent interest in InterMedia.

PaineWebber Inc. vice president of research Thomas Eagan
said the Bresnan deal could lead to more system swaps by Charter, possibly with AT&T.

"What [Charter] needs to do is to create better
clusters," he added.

Eagan singled out the Los Angeles market as a possible next
candidate for rationalization. Charter, which entered that market with its acquisition of
Falcon Communications Inc., could trade for subscribers by signing a telephony agreement
with AT&T, he said.

Bresnan has been on the block since last month, and it had
attracted intense interest from Comcast Corp., Cox Communications Inc. and Adelphia
Communications Corp.

Bresnan's systems -- with 690,000 subscribers in Michigan,
Minnesota, Wisconsin and Nebraska -- have been noted for being modern and well-run.

The deal works out to about $4,500 per subscriber, or 23
times 1998 cash flow. That's a high price, but one that many industry observers expected
given the condition of Bresnan's systems.

"The Bresnan systems are good systems," Eagan
said. "They offer a lot of new services. I can see why [Charter] would pay more than
$4,000 per sub for them."

About 75 percent of Bresnan's systems are at 750-megahertz
capacity, and the company planned to spend about $110 million on upgrades this year.

The company has rolled out high-speed Internet service in
about 12 markets so far. High-speed Internet access was available to 250,000 homes as of
April, and Bresnan estimates that the total will increase to 400,000 homes by the end of
the year.

Bresnan's properties fit in nicely with the existing
Charter cluster in Michigan. Charter has about 230,000 subscribers in that state as a
result of its pending purchase of Avalon Cable.

Coupled with former Marcus Cable systems in Minnesota and
Wisconsin, the latest acquisition will create a regional cluster with more than 1.35
million subscribers in those three states.

While Charter gains a stronghold in the Midwest, the cable
industry loses one of its pioneers.

William Bresnan -- who started Bresnan Communications in
1984 with just 28,000 subscribers, and who has 41 years in the cable business -- will not
have a role with Charter after the acquisition. However, Bresnan officials expect Charter
to retain most of Bresnan's 1,400 employees.

Bresnan said it will feel "weird" to no longer be
a cable operator, but he added that he would still like to play a role in the industry,
perhaps in the international arena.

He said his son, Daniel, currently vice president of
international operations, is investigating several different international opportunities.
However, no deals are imminent.

"I'll be footloose and fancy-free," the
65-year-old Bresnan said. "I'm probably too young to retire."

Bresnan Communications had been a player in the
international cable market for about five years, with systems in Poland serving about
300,000 subscribers and a Chilean operation with more than 200,000 customers.

However, the company sold its Chilean operation in 1998,
and it is in the process of selling its Polish systems for more than $300 million.

Bresnan said it had not yet been determined whether his
sons Daniel and Michael, currently vice president of domestic operations, will have
continued roles with Charter.

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