Microsoft Corp. cofounder Paul Allen got one step closer to
his vision of a "Wired World" last week in a complicated $1.3 billion deal
involving his Charter Communications, along with InterMedia Partners and
Tele-Communications Inc.
The transaction involves cash, stock and system swaps
between St. Louis-based Charter; its soon-to-be subsidiary, Marcus Cable; TCI; and
InterMedia. Allen's Vulcan Ventures Inc. owns Charter.
Here's how it ends up:
Charter will receive 400,000 of InterMedia's
subscribers in South Carolina, North Carolina, Georgia and Tennessee.
TCI gets 440,000 homes -- including
InterMedia's core Nashville, Tenn., cluster -- in exchange for its 49 percent
interest in the InterMedia IV partnership. Other systems in that partnership end up in
Charter's hands. InterMedia will manage the Nashville property.
A company spokeswoman said the decision to have InterMedia
run the Nashville cluster was twofold: InterMedia's headquarters are in Nashville,
and it already has the management infrastructure in place.
InterMedia keeps a major system in northern
Kentucky, where, with about 430,000 subscribers, it is the largest cable operator in the
state.
The total value of the assets involved in the transaction,
including the Charter properties, is $2.4 billion. The transaction is subject to
shareholder and regulatory approval, and it should be finalized by this summer.
Bruce Stewart, senior vice president and general counsel
for InterMedia, said the deal was reached because it made so much sense.
"Our superior system infrastructure and our aggressive
rollout of advanced services made us an attractive property for acquisition," Stewart
said. "And Charter was looking for properties to grow. This was, in our
investors' minds, a good transaction and a sound transaction."
And it was also a lucrative transaction.
Based on the $1.3 billion asset estimate of the Charter
portion of the deal, those systems were valued at about $3,400 per subscriber, one person
familiar with the matter said.
Spencer Grimes, media analyst for Salomon Smith Barney in
New York, said the deal is in line with his multiples on the InterMedia systems -- about
$3,300 per subscriber.
In comparison, Allen paid about $3,700 per subscriber for
Charter and $2,500 for Marcus.
Grimes added that the deal also was a good one for TCI,
giving it the opportunity to consolidate the Nashville area -- one of the fastest-growing
cities in the South, and a location with a healthy appetite for new services.
And Charter, he said, also gets to expand its presence in
the Southeast market.
"Charter now has a very attractive Southeast
cluster," Grimes said. "These guys are focused on consolidation."
Charter's new systems are in Greenville and
Spartanburg, S.C.; Athens and Gainesville, Ga.; Asheville and Marion, N.C.; Kingsport,
Cleveland and Alcoa, Tenn.; and certain west Tennessee communities.
Charter already has a major cluster in the Simpsonville,
S.C., area, which is near Greenville and Spartanburg.
"The InterMedia systems that we will acquire in this
transaction are nicely clustered with Charter's existing cable systems, including
several Marcus systems," said Jerald Kent, Charter's president and CEO, in a
prepared statement.
"They have strong management teams that have
demonstrated their commitment to customer satisfaction and that provide a unique
opportunity for Charter to complement its Wired World strategy and deliver the next
generation of advanced data and transactional services," Kent added.
Once this deal and the pending merger with Marcus are
approved, Charter will have about 2.8 million subscribers.
InterMedia bought from Charter and traded to TCI systems in
Shelbyville, Ky.; Logan, Utah; and Milltown, Mont., as well as some small systems in
Indiana.
After the Nashville system is upgraded, it should fit
nicely into TCI and AT&T Corp.'s post-merger plans. When the deal is completed,
Nashville will be one of TCI's top 10 clusters.
InterMedia already has a relationship with AT&T: It
signed on as an affiliate of the long- distance giant last year, agreeing to provide
telephony services through AT&T's local network.
The smaller systems in Indiana, Utah and Montana also fit
in with TCI's plans to expand westward.
"We're going to own and operate those
markets," TCI spokeswoman Katina Vlahadamis said. "We're trying to move
west, and Indiana is an important market, as well."
The deal gives Charter systems that are adjacent to its
major clusters. In addition, 63 percent of those systems have been upgraded to
750-megahertz, two-way capability in the past three years, and 23 percent are at 550 MHz
or better and already offering advanced services.
According to InterMedia, 88 percent of its systems provide
digital service, and the Nashville and South Carolina markets have been offering
high-speed Internet access since 1997.
This is the third major cable deal for Allen, whose $4.5
billion acquisition of Charter was approved earlier this month. Another deal -- the $2.8
billion purchase of Dallas-based Marcus -- is expected to close early this year.
Allen was attracted to cable as a means to realize his
Wired World vision, where people would have immediate access to information and resources
around the world. This latest acquisition brings that vision another step closer to
reality.
But Allen isn't finished yet: Although the company
would not talk about any future or pending deals, a spokeswoman said its buying binge is
far from over.
"We're still looking," said Anita Lamont, a
Charter spokeswoman.
