RCN Said to Test Sale Waters

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Perhaps encouraged by the strong valuation rival overbuilder WideOpenWest attracted when it sold out earlier this year, RCN is considering a sale itself.

The nation’s largest overbuilder -- with about 418,000 subscribers, including a substantial presence in major markets like New York and Chicago -- RCN hired investment bankers Waller Capital and The Blackstone Group to advise on “strategic alternatives,” including a sale, according to executives in the cable financial community.

“Our company policy is not to comment on market speculation, and we view this as market speculation,” RCN senior vice president for strategic and external affairs Richard Ramlall said through a spokesman.

Officials at Waller and Blackstone declined comment.

Publicly traded RCN -- which emerged from Chapter 11 bankruptcy in 2005 with a virtually clean balance sheet -- is also pursuing possible acquisitions of competitive local-exchange carriers in case an outright sale is taken off the table.

But several executives in the cable investment-banking community said RCN is leaning toward an outright sale, at least for now, and it is beginning to send out feelers to interested buyers. According to those executives, RCN is not interested in selling the company piecemeal -- it will sell the whole company or nothing at all.

This marks a bit of a departure from its past strategy. In the past several years, RCN has sold off smaller, nonstrategic markets to consolidate its footprint in a few areas. Its most recent deal was for its 18,000-subscriber San Francisco system, which it sold to Astound Broadband for about $45 million earlier this month.

While RCN has held off from selling out in the past years as cable valuations have declined, it could have been encouraged by the recent sale of WOW to Avista Capital Partners, a private-equity group that paid an estimated $800 million for the 325,000-subscriber overbuilder. The WOW deal valued the company at about 9-9.5 times cash flow.

This would mean that RCN -- which is expected to report full-year-2006 cash flow of about $126.9 million, according to Miller Tabak media analyst David Joyce -- could attract a price of $1.1 billion-$1.2 billion.

That actual sale price could be higher, given RCN’s larger-market systems and the fact that it is publicly traded.

RCN stock was priced at about $26 per share Tuesday, and it had a market capitalization of less than $1 billion. The stock jumped to $27.85 -- up $1.85, or 6% -- in Wednesday-afternoon trading after Bloomberg News reported that RCN was considering a sale.

Books on the RCN systems went out earlier this week, according to one person in the cable investment-banking community.

According to several executives in the cable investment-banking community, prospective bidders on the systems include private-equity groups and other overbuilders, such as WOW and Georgia-based Knology.

While other larger cable companies could also be possible bidders, at least one executive in the cable industry said that may not be likely, given the national scope of RCN’s footprint.

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