Encouraged by recent deals for cable systems in the $3,000 to $4,000 per subscriber range, Galaxy Cable Inc. is investigating the possible sale of its 80,000 subscribers in 14 states.
Galaxy said last week it retained New York cable investment banker Waller Capital Corp. as an adviser in the process.
Sikeston, Mo.-based Galaxy has had a troubled past, but appeared to be back on track after emerging from Chapter 11 bankruptcy protection in March 2002. Galaxy filed for bankruptcy about six months earlier.
In a restructuring, Galaxy's largest bondholders Cerberus International Ltd. and Cerberus Partners, New York-based investment firms that specialize in distressed companies, ended up with more than 50% of Galaxy's equity in a debt-for-equity swap.
Galaxy CEO Ron Dorchester said Cerberus still owns a "substantial" amount of Galaxy's equity. Galaxy's investors include nearly 100 different institutions, including Lehman Bros. Inc. and Bear Stearns & Co., he added.
Dorchester's Anchor Pacific Corp., of Austin, Texas, manages Galaxy.
Dorchester said Galaxy expects to complete a first round of system upgrades — involving 40% of its properties — in December, to 550 Megahertz to 750 MHz capacity. A second round of upgrades has begun, he said.
"We thought there was a genuine opportunity in the marketplace to maximize value for our investor shareholders," Dorchester said. "They've been through a bankruptcy, they've really paid their dues."
Cable valuations have grown in the past year. A few well-publicized deals — Charter Communications Inc.'s sale of Port Orchard, Wash., systems and RCN Corp.'s sale of Carmel, N.Y., properties — ranged between $3,600 and $4,000 per subscriber. Last month, Charter sold another 235,000 subscribers in four states to Atlantic Broadband Inc. for about $3,250 apiece.
While Galaxy's systems will likely attract lower prices — Port Orchard and Carmel were highly upgraded systems in affluent areas — it could make sense to MSOs looking to augment their footprint.
Dorchester said Galaxy has some relatively sizeable clusters in Mississippi (18,000 subscribers); Nebraska and Kansas (25,000 customers) and Florida (10,000 customers) that could be attractive to larger MSOs.
Were they sold for $2,700 to $3,000 per subscriber, the Galaxy properties could fetch $216 million to $240 million. That would be a substantial premium for Cerberus, which sources estimated purchased a good chunk of Galaxy's $80 million in debt for pennies on the dollar.
Dorchester wouldn't say what price Galaxy has in mind, although he said recent deals have gone for between 10 times and 12 times cash flow. He said if Galaxy does not receive bids that reflect what it feels is the appropriate value for the systems, it will take them off the market. "If we don't see great values, we're going to continue to operate these assets."