R&A Management, formerly Rifkin & Associates, is close to a deal to sell 70,000 rural cable subscribers in West Virginia and several Midwestern states, after Buford Media president Ben Hooks signed a letter of intent to purchase the systems.
The deal would be a major one for Hooks, who has been looking to rebuild his cable company after selling Buford Cable to Classic Communications Inc. in 1999 for about $300 million. He has been in search of cable properties for several months, and currently only has about 7,000 subscribers in Arkansas.
Hooks declined to comment. Kevin Allen, president of R&A Management, did not return phone calls for comment.
$56M TO $105M
Though the price Hooks offered hasn't been disclosed, sources in the financial community said it would likely be between $800 and $1,500 per subscriber, making the total deal worth $56 million to $105 million.
The largest of the Rifkin systems are in West Virginia, with the rest scattered in rural communities in Ohio, Pennsylvania, Illinois, Indiana and Southeast Missouri. Back in 1999 the systems had about 100,000 subscribers, but they have since lost customers to satellite competitors.
While the LOI is only a preliminary stage and the deal could still be ultimately scuttled, the properties appear to fit in with Hooks's strategy: buy rural operations that need work but have the potential to make money through the sale of high-speed data and digital cable service.
But according to several sources inside the cable community, the R&A Management systems — operated under the name Alliance Communications — are in dire need of work. Those same sources said that because the systems are so small — some have as few as 500 subscribers per headend — it will be difficult to economically provide advanced services.
Sources inside the financial community said that Hooks is currently looking for credit financing for the deal, which the LOI could help him get.
"He's going to have a tough time finding the money," said one executive in the finance community. "This is a real workout property."
Another financial community source added that because the systems are so small in terms of subscribers, "it's tough to justify putting in technology because you can't amortize the technology cost."
But Hooks has been a big proponent of WSNet Inc. and Motorola Inc.'s quadrature amplitude modulation system — which allows smaller operators to offer digital service at a fraction of the cost of just a few years ago.
With services from WSNet — which provides satellite programming to smaller operators — as well as new offerings from Headend In The Sky and lower-priced headend technology, smaller operators can now offer advanced services at prices competitive to DBS.
In the past, a 35-channel cable system didn't have the room to accommodate a HITS package. But today, by combining WSNet with HITS and compressing the signal at a 10-to-1 ratio, operators can vastly expand their channel offerings without having to undergo a massive and costly physical-plant upgrade.
Buford Media is launching such a service in one of its Arkansas systems, expanding a 30-channel system into a 200-channel operation.
Rifkin had been a big player in secondary markets in the past, but sold 460,000 subscribers in most of its better properties to Charter Communications Inc. in 1999 for $1.5 billion. While Rifkin held on to some very small rural systems after the Charter deal with the intention of growing its rural base, the company scrapped those plans about three years ago.