Insight Auction Down to Mediacom, Cablevision, WOW

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Final bids for Insight Communications are due next week and the field, once chock full of strategic and financial players, has been pared down to three final participants -- Mediacom Communications, Cablevision Systems and WideOpenWest -- according to sources familiar with the auction.

Insight, which has about 693,000 basic video subscribers in Indiana, Kentucky and Illinois, went on the block in March and is reportedly asking for as much as $3.5 billion to $4 billion. Bank of America Merrill Lynch and UBS AG are running the auction for Insight.

According to sources familiar with the matter, several bidders dropped out of the running in past weeks, including Suddenlink Communications, Charter Communications and several private equity funds.

The asking price -- estimated to be between 10 times to 11 times forward-looking cash flow -- has evidently forced some potential bidders to the sidelines.

Back in May, Time Warner Cable, considered by some to be the most logical buyer for Insight, reportedly did not participate in the bidding mainly because of the high multiple. Time Warner Cable stock is currently trading at about 6.5 times forward looking cash flow. It recently purchased 70,000 subscribers from NewWave Communications for under 8 times cash flow, which some observers said sent a signal to Insight's owners.

WideOpenWest chief marketing officer Cathy Kuo declined comment. Mediacom declined to comment.

In a statement, Cablevision said "It is the company's long-standing policy not to comment on rumors or speculation."

Sources familiar with the auction said that it is still up in the air as to who would ultimately win Insight, adding that a new bidder could also emerge at the last minute and snap up the properties.

Each of the remaining bidders has their own issues, according to sources.

Mediacom, these people said, is trying to raise sufficient equity for a competitive bid; Cablevision is weighing whether it wants to pay upward of $4 billion for another acquisition so soon after its December purchase of Bresnan Communications; and WideOpenWest, which already competes with Insight in Columbus, Ohio and Evansville, Ind., could have potential anti-trust difficulties.

Add to the mix a right of first refusal for any offer from one of Insight's current partners -- Texas-based private equity funds Crestview Partners and Mid-Ocean Partners, which includes cable pioneer Jeff Marcus -- and the situation gets more complicated.

Crestview/Mid-Ocean purchased half of The Carlyle Group's interest in Insight in 2010 for an undisclosed sum. In addition to that 42% interest, Crestview has the right of first refusal on any sale of Insight, meaning it could match any offer from an outside bidder and buy out Carlyle's interest.

Those sources said that if Crestview decides to sell, it can nix any deal in which it does not at least double its initial investment. That, sources said, is the main impetus behind the $3.5 billion to $4 billion asking price for Insight.

While Insight would make strategic sense for all three bidders, Cablevision may have the upper hand because it has so much available financial capacity.

According to Miller Tabak media analyst David Joyce, Cablevision could borrow another $3.89 billion and still be under its stated maximum target leverage of 5 times cash flow.

That's not to say Cablevision would pay full price for the asset. But it does have the financial wherewithal to keep the bidding interesting.

"If Cablevision wants it, it's theirs," said one member of the cable financial community who asked not to be named.
Insight also seems to fit the Cablevision profile -- a well run operator with a strong presence in college towns that could benefit from programming and other cost synergies with a larger MSO.

Although Insight's first-quarter growth seemed to lag behind previous years -- it grew revenue and cash flow in the period by about 2% each -- it has been one of the top performers in the industry over the past several years. Its 41% high-speed data penetration and 23% telephony penetration also puts it in the top echelon of cable operators.

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