Frustrated with a stagnant stock price, Insight Communications Co. Inc. announced a plan to take the New York-based MSO private in a deal valued at about $650 million.
Insight’s two largest shareholders -- chairman Sydney Knafel and CEO Michael Willner -- and private-equity giant The Carlyle Group announced the plan Monday morning.
According to the deal, Insight shareholders would receive $10.70 in cash for each Insight share they own. The price values Insight at about 9.4 times estimated 2005 cash flow.
Willner and Knafel -- who represent about 14% of Insight’s equity and 62% of its vote -- have notified the board of directors that they will not consider any other transaction for their interest in the company.
That pretty much closes the door on a bidding war for Insight, which went public in 1999 at the height of the Internet bubble.
Although Insight stock rode the wave of irrational exuberance early -- the stock went public at $24.50 per share in July 1999 and had climbed as high as $31.88 Sept. 13, 1999 -- the shares have languished at $8-$10 apiece in the last several months.
The MSO has endured stiff competition from direct-broadcast satellite service providers, and it lost about 20,000 basic subscribers in 2004. However, those losses began to slow down in the fourth quarter, and Insight said that with most of the local-into-local launches completed, the worst was behind it.
One question that remains is what happens to Comcast Corp.’s interest in the MSO -- the ninth-largest in the country, with about 1.3 million subscribers in the Midwest. Comcast owns a 50% interest in Insight, which it inherited in its 2001 acquisition of AT&T Broadband.
Some analysts have speculated that Comcast could buy out the remaining 50% of Insight -- it has the right to trigger a split-up of the partnership beginning Dec. 31 of this year. Going private could make such a deal easier to do.
According to the deal, Knafel, Willner and Carlyle will create a new entity, New Insight LLC, to acquire the shares. The price represents an 11% premium to Insight’s March 4 closing price of $9.68 per share and a 17% premium to its six-month trading average. Insight is expected to create a special committee of independent directors to evaluate the proposal.
The transaction will not result in a change of control -- Knafel and Willner will retain their titles -- but it will require shareholder approval.
“This proposal represents an opportunity for Insight’s public shareholders to realize liquidity at a price higher than the shares have traded over the past 12 months,” Knafel said in a prepared statement.
News of the proposal sent Insight shares to a new 52-week high Monday morning -- the stock was priced as high as $11.76 per share, but it fell back slightly to $11.60 (up $1.92 each, or 20%) in early trading Monday.
This could mean that the group may have to increase its offer to get the deal done. In a research report, Citigroup Smith Barney cable analyst Niraj Gupta wrote that a revised bid could go as high as $12.16 per share, or about nine times estimated 2006 cash flow.
If the transaction is approved, Insight would be the second top-10 MSO to go private in about one year. In August, Cox Communications Inc. announced that its controlling Cox family would buy in the remaining 38% public stock of the MSO. That deal, valued at about $8.5 billion, closed Dec. 8.
Morgan Stanley Dean Wittter & Co. and Stephens Inc. are serving as New Insight’s financial advisors in the transaction, and Dow, Lohnes & Albertson PLLC and Debevoise & Plimpton LLP are providing legal counsel.