Classic Communications Inc., a rural operator based in
Austin, Texas, emerged last week as the winning bidder for Buford Television, another
Texas-based rural MSO.
Terms of the acquisition, slated to close in July, were not
disclosed. Several sources familiar with both companies pegged the purchase price at about
$300 million, or $1,765 per subscriber -- well below the recent industry norm for system
deals.
One MSO source who declined to be named said the price was
kept down because more than one-half of the Buford systems' capacity is at or below
330 megahertz, and only 51 of Buford's 261 headends serve more than 1,000 customers.
"The rebuild cost will be significant," the source added.
The source estimated that the cost of rebuilding the Buford
systems would be in the $1,000- to $1,200-per-subscriber range, or between $170 million
and $200 million.
Buford had hoped that the deal would set a standard for
future small cable acquisitions, determining whether small and midsized operators could
garner the high prices that some of the larger operators have.
Those high expectations, some sources said, might have led
Buford's negotiations with St. Louis-based MSO Millennium Digital Media Holdings LLC
to break down.
According to sources, Millennium initially intended to buy
Buford systems totaling about 72,000 subscribers. But during negotiations, Buford changed
gears, requesting that Millennium purchase the company outright.
That back-and-forth negotiating stance -- some added that
Buford was also holding out for more money -- may have forced Millennium to decide that
the systems weren't worth the aggravation.
"I think that they got a little buyer fatigue,"
one source said.
Buford CEO Ben Hooks declined to comment on other bidders.
Buford has about 170,000 subscribers in Texas, Missouri,
Arkansas and Louisiana. The deal would nearly double Classic's size, currently about
190,000 subscribers in eight states: Texas, Kansas, Oklahoma, Missouri, Arkansas,
Nebraska, New Mexico and Colorado.
Brothers Robert and Jeff Buford put their company on the
block last year, hiring investment bankers at Donaldson, Lufkin & Jenrette Inc.
CIBC Oppenheimer Corp. high-yield cable-television and
telecommunications analyst Aryeh Bourkoff said he figures that the Buford deal is not
Classic's last. "Given that Classic is effectively doubling its subscriber base,
it will continue to look for consolidation opportunities," he added.
Classic CEO J. Merritt Belisle said the Buford systems
provided "a tremendous geographic fit" with Classic's. "Buford has a
bunch of good people and a great call center that will give us redundancy. We're
hoping to grow and leverage off those assets," Belisle said.
"We're hoping to keep the good people who are
there," Belisle added. "Ben [Hooks], [chief operating officer] Ron [Martin] and
[chief administrative officer] Kay [Monigold] are strong people."
Although he would not give details, Belisle said Classic
intends to upgrade the Buford systems. Classic is in the middle of a $79 million upgrade
of its own, expanding to 550-MHz capacity and adding digital programming from AT&T
Broadband & Internet Services' Headend in the Sky service.
Buford has some attractive qualities in addition to raw
scale. The systems are well run, generating about $189 in cash flow per subscriber in 1998
and expected to rise to $201 in 1999, despite an average of only 33 channels of basic and
expanded-basic programming.
Monthly revenue per subscriber was about $34 last year,
rising to $35 in 1999, versus the industry average of about $40, according to materials
that DLJ prepared for bidders.
Although Buford's systems are located primarily in
rural areas, about two-thirds are within a large or midsized market such as Dallas or
Houston.
The company also has a 24-hour call center capable of
serving 2 million subscribers.
