Tele-Communications Inc. last week acquired 255,000 Jones
Intercable Inc. subscribers in the suburbs of western Chicago -- a transaction reportedly
valued in excess of $500 million.
By pulling the trigger on the long-rumored deal, TCI
Communications Inc. (TCIC), TCI's cable unit, will pick up another 15 percent of the
Chicago market, growing its cluster there to an estimated 1.5 million subscribers.
"We are excited to add these communities to the
foundation that TCIC has established throughout the Chicagoland area," said TCI
president and chief operating officer Leo J. Hindery Jr., in a prepared statement.
"We have demonstrated a strong commitment to this region and its residents."
Terms of the transaction, which is expected to close in the
first quarter of 1999, were not disclosed. However, sources said, it's an all-cash
deal valued at roughly $2,000 per subscriber.
The deal also sets up a showdown with Ameritech New Media,
which has cable franchises in four of the communities that TCI is moving into. And
Ameritech Corp.'s cable arm is negotiating for a franchise that would produce an
overbuild of TCI in Area 5 on Chicago's South Side.
TCI also said last Friday that it signed a letter of intent
to sell several mid-Atlantic-area systems, with 147,500 subscribers, to TW Fanch-one Co.,
a partnership of Time Warner Cable, Fanch Communications Inc. and the Blackstone Group.
TCI has been shedding systems east of the Mississippi River through sales, exchanges and
formation of partnerships, and it has focused on clusters such as the one that it is
adding to in Chicago.
TCI is also eyeing Chicago-area systems owned by Prime
Cable and Cablevision Systems Corp., sources familiar with the situation said.
"Absolutely," said Ted Henderson, a Denver-based
analyst with Janco Partners. "I expect TCI to be bumping anybody that they can to get
control of Chicago, because it's a great market."
For Jones, the sale allows it to exit a market where it is
not the dominant operator. Instead, it will concentrate on its major clusters in
Washington, D.C.; Augusta, Ga.; Albuquerque, N.M.; Independence, Mo.; and Palmdale, Calif.
"This agreement is another step toward our goal of
becoming an owned-asset company, rather than primarily a management company," said
Jones chairman Glenn Jones, in a prepared statement.
However, the MSO will not just pocket the proceeds from the
deal: Those funds will go to buy out the limited partners that funded Jones'
operations in Illinois.
"But they have to be in a cash position to do
that," Henderson said. "Jones will get something on the back end, but most of
this money will go to the limited partners."
Jones will have 1.2 million subscribers after the sale.
Sources said it has limited partnerships serving some 200,000 subscribers left to
Industry-watchers have long considered the Jones deal
"a natural" for TCI, which has been consolidating its hold on the Chicago market
through a series of transactions. It began its push last summer, acquiring systems owned
by US Cable Corp. and Cable One (formerly Post-Newsweek Cable Inc.), which gave it 650,000
customers in the area.
It later engineered a systems swap with U S West Media
Group, the video arm of U S West Inc., where it traded some 350,000 subscribers in Florida
for an equal number of customers in the Chicago suburbs.
Not unexpectedly, area regulators, who must approve the
transfer of the Jones systems, said they expected to quiz TCI on its "checkered"
"Obviously, TCI can bring new technologies to these
systems," said Tom Weisner, director of public property for the city of Aurora, Ill.,
and president of the National Association of Telecommunications Officers and Advisors.
"But this will be a true test of Leo Hindery's commitment to customer service.
We'll see if it flows from the top down to the trenches."
The Jones properties being acquired serve the communities
in and around Aurora, Lake County, Lake Zurich, Naperville, Orland Park, Matteson and
The price on the TW Fanch deal was not disclosed. The
systems are mostly in Ohio and West Virginia, and they add to TW Fanch's existing
operations in those two states.
Kent Gibbons contributed to this story.