The eyes of the cable industry were closely watching
Charter Communications' initial public offering last week, and judging by the
preliminary results, they should be very pleased with what they saw.
Charter's IPO was one of the most anticipated of the
year, and in raising $3.7 billion -- including underwriter overallotments -- it became the
third-largest IPO in U.S. history.
Even more important, it indicated that the investment
community is still hot for cable -- a fact that should not be lost on two smaller cable
operators considering their own IPOs, Classic Communications Inc. and Mediacom LLC.
Charter sold about 170 million class-A shares at $19 each,
the upper end of its expected pricing range of $17 to $19. On its first day of trading,
the stock rose as high as $23.75 per share after closing Nov. 9 at $22.75, up 19 percent
on volume of 115.8 million shares.
The stock continued to climb Nov. 10, closing at $25 per
share, up 10 percent. On Nov. 11, the stock closed at $25.50.
Charter officials declined comment through a spokeswoman,
noting that the company is still in its securities-regulation "quiet period."
Charter is the second cable company to test the public
market this year, following Insight Communications Co. Inc., which went public in July,
raising more than $600 million. The aftermarket performance of Insight's stock has
been fairly good, with shares trading last week at about $24 each -- it had reached $32 in
September -- near its $24.50-per-share offering price.
All of this should be good news for Classic, a midsized
Austin, Texas-based MSO that filed for a $201.2 million IPO Oct. 19. According to Wall
Street sources, Classic has targeted an early December date for its offering.
Although Mediacom -- a Middletown, N.Y.-based operator with
about 750,000 pro forma subscribers -- has not filed for an IPO yet, many in the industry
expect the company to tap the public market in the next several months.
"We were pleased that Charter had a successful
offering, and it is evidence of the strong demand for cable stocks," Classic CEO
Merritt Belisle said. He would not comment specifically on the timing of Classic's
Although Charter's stock has performed well since its
offering, there was no huge spike in its price, as has become common in some recent
Internet IPOs. However, that is more due to the size of the offering -- 170 million shares
-- than to any investor uncertainty. Internet offerings are usually a lot smaller --
typically 3 million to 4 million shares -- which makes the possibility of a large price
spike more likely.
"Investors have been anticipating this deal for much
of the year," Cantor Fitzgerald Brokerage L.P. analyst Vincent Slavin said.
"There should be no disappointments in any way, shape, or form. Everyone should be
very, very happy, including [Charter chairman] Paul Allen."
The IPO also created several newly minted millionaires
among Charter's top executives, including outgoing vice chairman Barry Babcock, whose
2.5 million shares are now worth $47.5 million.
Other executives who benefited from the offering include
president Jerald Kent, who beneficially owns 5.3 million shares worth $100.7 million; vice
chairman Howard Wood, who owns 1 million shares worth $19 million; and former Falcon
Communications Inc. chairman Marc Nathanson, who beneficially owns 16.1 million shares
valued at $305.9 million. Charter purchased Falcon in a deal worth $3.6 billion earlier
But now that the frenzy surrounding the IPO is over,
Charter is going to have to concentrate on rationalizing its systems.
Although Charter will have roughly 6.2 million subscribers
across the country once certain deals are closed, many of its systems are scattered. The
company said in its IPO prospectus that improving the geographic clustering of its cable
systems through trading or acquiring systems would be a priority this year.
Having a new deal currency in the form of a publicly traded
stock should enable Charter to rationalize its systems at a rapid pace.
According to the prospectus, Charter's largest
clusters are in seven geographic areas: the Western, central, Metroplex, north central,
Northeast, Southeast and Southern regions. The MSO's largest cluster is in the
Western region, which has a total of 502,000 subscribers in California, 401,000 of which
are in Los Angeles.