Insight Communications Co. became the latest operator to
jump on the consolidation bandwagon with its $750 million purchase of a 50 percent
interest in InterMedia Capital Partners VI L.P., which serves approximately 430,000
subscribers in Kentucky.
This is the third major deal that Insight has made in about
a year, and it will boost the MSO's subscriber base to more than 1 million, making it
about the 10th-largest cable operator in the country.
The deal also establishes Insight as a player in the
industry -- one that has its sights set on acquiring other operators, rather than being an
acquisition target itself.
This wasn't the case a year ago, when Insight -- then
with about 170,000 subscribers -- was close to being bought out by St. Louis-based Charter
Although that deal fell through, it spurred New York-based
Insight to go on an acquisition binge.
It purchased a 67,000-subscriber system in Rockford, Ill.,
from Cablevision Systems Corp. for $97 million, and it formed a joint venture with TCI
Communications Inc. (now AT&T Broadband & Internet Services) with 325,000
subscribers in Indiana.
The company also bought a 75 percent control stake in
Coaxial Communications' Columbus, Ohio, system, with 91,000 subscribers, for about
$170 million. In addition, Insight has systems in Griffin, Ga., and Claremont, Calif.
Insight chairman Michael Willner said the company's
strategy since 1997 has been to grow through acquisition and strategic partnerships, and
there are no signs of stopping.
"We are looking to grow the company," Willner
said. "We have substantial resources, and we continue to look at all of the options
available in order to be significantly bigger."
Whether those options include a public stock offering, or
even an outright sale, Willner would not say.
However, Willner did say that the type of acquisition
targets that the company looks to must meet at least three criteria: They must be in
geographic proximity to Insight's existing clusters; they must be modern systems with
at least 100,000 subscribers per headend; and they must have attractive demographics.
InterMedia's Kentucky systems fit the bill
"These are fabulous properties," Insight
executive vice president and chief financial officer Kim Kelly said. "They have
basically what we are looking for in a cable system."
Insight is buying the 50 percent stake from Blackstone
Capital Partners, a merchant-banking fund based in New York. AT&T Broadband owns the
other half of the partnership.
The InterMedia partnership's operations are
concentrated in four cities: Louisville, Lexington, Bowling Green and suburban Cincinnati.
Kelly said the deal will involve $350 million in cash and
$400 million in assumed debt.
Louisville is the largest system, with about 220,000
subscribers. Most of the systems have been upgraded to 750-megahertz two-way technology,
and all of them are served by four headends.
The deal is expected to close in August or September.
Merrill Lynch & Co. advised Blackstone, and Donaldson,
Lufkin & Jenrette Inc. advised Insight in the transaction.
While the deal is expected to further strengthen
Insight's clusters, it signals the departure of InterMedia from the cable industry.
InterMedia vice president and general counsel Bruce Stewart
said the decision to sell its last system was the result of an offer that
InterMedia's partners just couldn't refuse.
Stewart said Blackstone had been a part of InterMedia for
about a year, and the partnership had been investing heavily in upgrading the system to
750-MHz, two-way capability.
The Kentucky systems also have a 200-channel digital tier,
and a high-speed Internet service, via @Home Network, is expected to launch soon. Insight
is also an @Home affiliate.
"We feel pretty proud of what we have been able to
do," Stewart said. "This has been a pretty blockbuster year."