Galaxy's Latest Sale Effort Is Held Up


Galaxy Telecom L.P.'s plan to sell out to rural cable upstart Mallard Cable-vision LLC has been delayed as the two parties try to work out a deal before a July 31 deadline imposed by Galaxy's lenders.

Galaxy-which has about 123,000 subscribers in several rural systems in the Southeast and Midwest-signed a letter of intent to sell to Mallard in May. The LOI expired June 30 without a completed sale agreement.

But despite the expiration, Mallard president William Jenkins said last week that the two companies were still in negotiations to hammer out a final deal. He did not say specifically what the holdup was, but he said he hopes Mallard can reach an agreement for the Galaxy systems.

"We are still actively discussing with them," Jenkins said. "We've got to get all of our ducks in order. We're still very interested in having a serious relationship with those folks."

Mallard is backed by New York-based BG Media Investors Inc. and Capital Communications, a unit of Canadian fund manager Caisse de dépôt et placement du Québec.

An earlier LOI with Adelphia Communications Corp. for the systems fell through in January, executives close to the situation said. Galaxy has disclosed that it had an LOI to sell to Classic Cable Inc. that expired in February.

Galaxy has been eager to strike a deal because of a July 31 deadline imposed by its banks.

The banks, to which Galaxy owes about $25 million, had originally imposed a deadline of May 31 before they would call in their loans, according to the Form 10-K annual report Galaxy filed at the Securities and Exchange Commission in May.

Although $25 million doesn't sound like a lot for a cable company in an era of skyrocketing valuations, calling in the loans would also trigger a repayment of about $120 million in high-yield debt.

Galaxy president Jim Gleason did not return calls seeking comment.

The Galaxy systems are expected to sell for substantially less than the industry average of $4,500 to $5,000 per subscriber, mainly because of their locations-rural markets-and their condition. Although some of the systems have been upgraded to 750-megahertz capacity, most are in the 300-MHz range.

Mallard, which was formed in 1999, has paid less than $2,000 per subscriber for all of its systems so far.

Part of the problem, some industry observers have said, is that Mallard is having trouble raising money for the acquisition because of the condition of the Galaxy properties.

"The public valuations aren't helping any," Jenkins said. "It's a fairly sizable transaction, and we've just got to make sure we do it right. But it is a challenge."

And despite the deadline, Jenkins said he is in no rush to close the deal.

"We would love to have a deal inked by [July 31]," Jenkins said. "I'm not under that time constraint. I think [Galaxy's] time constraint is somewhat flexible. I think the lenders want to see some activity, and there is certainly activity."

And even though the banks have been lenient, there comes a point where their patience will run out.

The Galaxy deal, if consummated, would boost Mallard's subscriber base to nearly 250,000. The company currently has about 90,000 subscribers, and a deal with Cox Communications Inc. for another 30,000 customers is pending. Jenkins said he hoped to close the Cox deal in September.

Jenkins-who joined Mallard last year after building and managing cable systems in the South for the past 30 years-wants to grow Mallard to between 400,000 and 500,000 subscribers over the next 12 to 18 months.

That growth would be done largely through acquisitions, and Jenkins is aware that the pickings are getting thin, even in secondary markets.

"Think of the consolidation that's already been done," he said, adding, "We're pretty comfortable. There are enough strategic acquisitions to get to 400,000 to 500,000 [subscribers]."

As part of that strategy, Jenkins has assembled a management team made up of former cable executives, including current High Speed Access Corp. founder and vice chairman Ron Pitcock.

Pitcock, who will retain his position at HSA, is Mallard's senior vice president and chief of advanced technology. Jenkins said Pitcock would devote most of his time to Mallard.

Other members of the Mallard team include vice president and chief technical officer Dewayne Lipp, formerly with General Instrument Corp. (now Motorola Broadband Communications Sector); senior vice president Tom Soulsby, a 30-year veteran of the cable industry, most recently with HSA; and senior vice president, Eastern region William Chain, another 30-year cable veteran who previously served as vice president and general manager of Prime Cable affiliates in Chicago, Las Vegas and Buffalo, N.Y.

Rounding out the team are vice president and chief financial officer Richard Ebersole, formerly CFO of Outdoor Communications Inc.; and vice president of programming and marketing Ann Cherrette, formerly of the Georgia Municipal Association, where she was responsible for the regulation of cable systems in that state.