Knology Inc. confirmed last Monday that it’s agreed to sell its 8,000-subscriber cable system in Cerritos, Calif. to Orange Broadband for $14.8 million in cash.
The deal came in a little higher than some expected — at $1,850 per subscriber or nearly 4 times annual revenue. Several members of the cable financial community had expected the systems to sell for $11 million to $12 million.
Knology bought the Cerritos system in December 2003 as part of a larger $17 million deal with Verizon Media Ventures Inc. in which the company acquired systems in Pinellas County, Fla., with about 53,000 subscribers.
Some cable-finance experts speculated the vast majority of the Verizon purchase price was for the Pinellas systems; the Cerritos properties were practically thrown into the deal for free.
Knology would not reveal the cost basis for the Cerritos systems, but had said in the past that they received substantially more than they paid for the assets.
“We are pleased to have found a solid buyer for the Cerritos property, as our focus continues to be on integrating the Pinellas County property into Knology’s operations,” CEO Rodger Johnson said in a prepared statement.
Orange CEO Bill Schuler added, “We are excited about the potential opportunity in Cerritos and look forward to enhancing the existing network to provide broadband services, including high-speed Internet service and digital-cable service.”
Prior to Verizon, the Cerritos system had been a cornerstone of GTE Corp.’s since-abandoned video initiative. The system had hosted interactive-TV service GTE Main Street.
Orange is backed by private-equity groups JP Morgan Partners, M/C Venture Partners, Columbia Capital and Oak Investment Partners.
Knology said it expects the sale to close sometime during the fourth quarter.
Schuler had been CEO of Carolina Broadband, a Charlotte. N.C.-based overbuilder that planned to build out networks in several communities there. It folded in 2001, having failed to secure debt financing.
Some of Orange’s current backers were the same equity groups that had invested in Carolina Broadband. With a combined asset base of $30 billion, it is likely that Orange’s four partners can provide the overbuilder with the capital it needs to upgrade the Cerritos systems.
Orange was formed last year and has previously been active in the deal market. It made a bid for the Western Integrated Networks LLC assets in Sacramento, Calif. (sold to SureWest Communications), as well as for RCN Corp.’s Princeton, N.J. assets (sold to Patriot Media) and Carmel, N.Y., system (sold to Susquehanna Media).
The deal comes about five months after Knology completed an initial public offering that raised about $56 million.
Proceeds from the Dec. 18 IPO were used to make the Verizon acquisition as well as help fund upgrades at the systems.