A little more than one year after starting his own investment firm after
abruptly resigning as president and CEO of Charter Communications Inc., Jerry
Kent is officially back in cable.
On Wednesday, Kent announced that CEQUEL III -- the investment partnership he
formed in January 2002 with former Charter cofounder Howard Wood -- has reached
a management agreement with Classic Communications Inc.
CEQUEL will also invest an undisclosed amount in the rural cable company,
which has 325,000 subscribers in 13 states.
Classic filed for Chapter 11 bankruptcy protection in November 2001, emerging
last month after its largest bondholder, Oaktree Capital Management LLC, agreed
to a debt-for-equity swap that left it in control of the company.
Kent, who cofounded Charter in 1993 with Wood and Barry Babcock -- who also
resigned from Charter in 2002 -- will become president and CEO of Classic and
will move the company's headquarters from Tyler, Texas, to St. Louis, CEQUEL's
Current Classic CEO Dale Bennett will join CEQUEL as vice president of
operations. Kent said CEQUEL may hire other former Classic executives.
In an interview, Kent said he has been speaking with Oaktree since the
summer. He added that he sees the rural cable market as an untapped
"We did a lot of studying of the rural cable market," Kent said. "It's out of
favor. No one has a big appetite for rural cable properties, and they have been
impacted significantly by satellite. For all those reasons, that's why we wanted
to jump in. We are contrarians. We always have been."
He added, "We started Charter in 1993 when satellite was getting ready to
launch, the industry had just been heavily reregulated and [former Bell Atlantic
Corp. chairman] Ray Smith said he was going to bury the cable industry."
But Kent said rural markets are hungry for broadband services. He added that
despite the loss of subscribers to satellite, Classic will be aggressive in
growing its customer base.
team has a history of being very competitive and doing what it takes
to guard our customers and to be proactive in the face of
satellite competition," he added.
"If that means we have to provide additional value to the customers or
discount our services to meet the pricing competition, we're going to do
Kent added that in a lot of Classic's markets, cable is not the incumbent
operator -- satellite is.
"That leaves you a lot more flexibility," he said. "You may be able to lower
your price and it doesn't take many additional customers to make up for that
price decrease. Also, if you bundle and give discounts for high-speed data,
that's something satellite can't compete with."
Kent agreed that Classic is not without its issues. However, he believes its
major problems are largely behind it.
"Classic had several issues. Probably the most important was that they had a
balance sheet that didn't match the business," Kent said. "Emerging from
bankruptcy, they've purged a lot of debt -- they're [leveraged] well under four
times cash flow. The balance sheet is now aligned with the business. The
properties are spread out, and we plan on rationalizing the systems."
Kent added that Classic could be the vehicle through which CEQUEL expands its
"Classic is not only focused on rural markets," Kent said. "We plan on buying
other properties in suburban and metropolitan markets that will end up with a
nice blend and balance between rural and more densely populated areas."
Kent would not elaborate on what systems he is looking at, but he added that
CEQUEL is very active in the market.
CEQUEL has been said to be among the parties interested in acquiring Shaw
Communications Inc. cable properties outside of Houston, as well as Alliance
Communications, which has systems in West Virginia, Ohio, Pennsylvania,
Illinois, Indiana and southeast Missouri.
"Oaktree and the other investors in Classic and the CEQUEL team all have the
vision of continuing to expand and use this as a platform to build a major cable
operator," Kent said. "It's our third time around, and we're very excited about
However, he added, the company has no set goal as far as size.
"Our initial plan at Charter, we felt that if we got to 500,000 subscribers
in four to five years, that would be critical mass," Kent said. "We way overshot
Charter now has 6.7 million