Charter Communications is reportedly planning an initial
public offering for later this year.
According to sources, Charter made the disclosure at an
analysts road show concerning its $3 billion high-yield bond offering, slated to raise
money to finance the company's recent acquisitions and refinance debt.
The bond offering is slated for next week and will come in
three tranches -- eight-year, 10-year and 12-year notes. Although exact pricing
hasn't been released yet, observers said that the deal will most likely be priced
similarly to other bond offerings in the cable industry, in the 8.4 percent range.
According to sources who attended the road show, Charter
also began talking up an IPO, which many believe is a logical step for the company.
"Charter management stated they are interested in
pursuing an IPO later in 1999 in order to deleverage the company somewhat and potentially
make acquisitions," said Aryeh Bourkoff, an analyst with CIBC Oppenheimer Corp., who
attended the road show.
However, the company did not go into detail as to when it
would make that offering, how large it would be or what percentage of ownership it would
sell to the public. Microsoft Corp. co-founder Paul Allen is Charter's major backer.
Anita Lamont, a spokeswoman for Charter, said there are no
immediate plans for an IPO, and that speculation regarding a Charter public offering has
been rampant for years. However, she added that an IPO "is always a
If Charter were to go public, it could raise a substantial
amount of money, given the recent state of the stock market.
According to some analysts, Charter has about $760 million
in pro forma annualized cash flow, which would give it a private market value of between
$9.88 billion and $13.68 billion, given current multiples of between 13 and 18 times cash
flow. Remove the $6 billion in debt the company has and its private market value is
between $3.88 billion and $7.68 billion.
Depending on the percentage of the company Charter plans to
float -- an average is about 10 percent -- and an IPO could raise anywhere between $388
million and $768 million.
But no matter how much Charter plans to raise through a
public offering, the money from an IPO could also help finance the company's
ambitious capital expenditure plan. According to the bond prospectus, Charter plans to
spend between $900 million and $1 billion over the next three years to upgrade its systems
to two-way communications, and another $900 million to $1 billion to expand those systems.
"The company has a pretty heavy capital expenditure
plan over the next three-to-five years," said Bourkoff. "They're going to
spend close to $1 billion in the next year-and-a-half. They could use the funds [from an
IPO] to finance that."
An IPO would give Charter public currency with which to
make acquisitions, something that has not been an issue in its purchases of privately held
companies. However, if Charter sets its sights on a public company, having its own
publicly traded stock becomes almost a necessity.
Charter has been on an acquisition tear since being
purchased by Allen in late 1998. Just this year alone the company has formed deals with
five different companies that would bring more than 1 million subscribers to the fold at
an estimated cost of about $3.9 billion.
Michael Marocco, managing director of Sandler Capital in
New York City, said that although he was not aware of any plan by Charter to go public, a
public offering that couples the cachet of Allen's name and the hot cable sector
could generate a lot of interest in the market.
"It's not inconceivable that they could go public
and generate a lot of excitement," Marocco said. "A lot of public companies have
been taken out -- Jones [Intercable], TCI and now Century [Communications Corp.]. It may
be there is enough room for another group to go public."
But Marocco added that there also is a reason for Charter
to stay private: tax benefits to its largest shareholder.
Marocco added that the way Allen has set up Charter is that
all the company's tax benefits -- depreciation, amortization and net losses -- flow
directly through him. However, if Charter became a public corporation Allen could no
longer realize those benefits.