Classic IPO Proves A Hit with Investors

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Classic Communications Inc. helped quash fears of
decreasing demand for cable stocks, launching an initial public offering and watching its
stock price rise 21 percent.

Classic priced its IPO at $25 per share on Dec.7, raising
$206.25 million. The shares opened at $30 each the next day and rose as high as $34 per
share. They closed at $30.31 each.

Classic priced at the top end of its expected range --
between $23 and $25 per share -- and hiked the number of shares offered by about 2
million -- to 8.25 million shares. The MSO said it sold about 35 percent of equity in
the IPO.

Classic has about 414,000 subscribers in mostly rural
markets, and said it would use the proceeds of the offering to make acquisitions and pay
down debt.

After a fallow cable-IPO decade, Classic's offering was the
third this year. It followed Insight Communications Co. and Charter Communications Inc. A
fourth, from Mediacom LLC, is due early next year.

The popularity of Classic's offering could bode well for
Mediacom, which plans to raise about $345 million. While Charter and perhaps Insight count
as large MSOs -- with 6.2 million and 1 million subscribers, respectively --
Classic is a true small-market operator, as is Mediacom.

"[Classic's and Mediacom's] systems are similar, but
their approaches are a little different," said Morgan Keegan & Co. Inc. first
vice president of equity research Murray Arenson. "Clearly this is a new segment, the
small, non-metropolitan markets."

Despite Classic's size, there was no lack of interest for
the stock -- roughly 10 million shares traded hands that first day.

Classic originally planned to offer 6.25 million shares in
its offering, but high demand for the stock prompted the company to boost the number of
shares offered.

"We had across-the-board strong demand for the
company's equity, including international accounts," Classic president and chief
financial officer Steven Seach said. "We are very pleased with the outcome."

Classic said part of the proceeds from the offering would
help finance the company's proposed $130 million acquisition of Star Cable Associates,
which has about 57,000 subscribers in Louisiana, Texas and Ohio. That deal is expected to
close in the first quarter next year. But Classic has more on its plate.

Company CEO Merritt Belisle said Classic plans to grow to 1
million subscribers in the next three years. And having deal currency in the form of
public stock will make achieving that goal all the more easier.

"That is precisely one of the reasons we wanted to get
[a public stock]," Belisle said. "It dramatically increases our ability to get
buyers and sellers together."

Arenson said he expects to see a lot more deal activity in
secondary markets, especially since consolidation in larger-market areas is essentially
finished.

"What we've seen happening is consolidation through
merger and acquisition and now we're beginning to see swapping," Arenson said.
"We haven't seen a whole lot of that in [smaller] markets. I think there will be a
lot of transactional activity in the smaller markets.

"I don't think the cable market was in a place where
it was ready to begin selling and swapping these properties until recently," he
added.

Classic will continue to focus on small- to medium-sized
independent operators with between 15,000 and 100,000 subscribers, said Seach. Although
the company said no additional acquisitions are on the immediate horizon, Classic has
identified about 26 companies with a total of 1.6 million subscribers that meet its
acquisition criteria.

Classic also sees opportunities in secondary markets owned
by larger MSOs, Belisle said. As those larger operators begin to rationalize their
markets, smaller operations that may have been ignored in the past could come up for sale.
Classic will be there waiting.

"All of the cable operators are continuing to
rationalize their footprints," Belisle said. "Classic is clearly positioned. Our
public currency, deleveraged balance sheet and strong financial standing put us in the
position to seek out the maximum number of acquisitions for the company."

Classic also has the backing of Brera Capital Partners
L.P., a New York City private-equity investment fund that earlier this year financed its
purchase of Buford Television Inc. for $300 million. Buford had about 170,000 subscribers
in Texas, Missouri, Arkansas and Louisiana.

Brera pumped about $100 million into Classic for that
purchase and took a 64.4 percent equity stake in the company. Brera owned more than 30
percent of the company's outstanding stock after the offering, but had 75 percent voting
control through its 6.5 million Class B shares

Goldman Sachs & Co. Inc. was Classic's lead manager.
Merrill Lynch & Co. served as co-lead manager and Donaldson, Lufkin & Jenrette
Inc. was co-manager. MCN

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