With the ink barely dry on its joint $17.6 billion deal to purchase Adelphia Communications Corp., Comcast Corp. executive vice president and co-chief financial officer Larry Smith told analysts Tuesday that the deal-wrangling for the No. 1 MSO is far from over.
The Adelphia transaction -- in which Comcast is expected to pick up about 1.8 million subscribers in a series of complicated transactions with partner Time Warner Inc. -- is expected to close in the next nine to 12 months.
Practically on the heels of that expected closing will come the resolution of Comcast’s 50-50 partnership with Insight Communications Co. Inc., Smith said, adding that Comcast will pick up about 650,000 Insight subscribers, or one-half of its 1.3 million Midwest customer base.
Comcast inherited the Insight partnership interest in November 2002 after its acquisition of AT&T Broadband. According to the agreement, either party had the right to dissolve the partnership after Dec, 31, 2005, or to leave it intact.
Insight is in the process of taking itself private in a $650 million deal with private-equity firm The Carlyle Group. The dissolution of the Comcast partnership is not expected to affect that plan because Comcast owns a 50% interest in the underlying partnership, not in the publicly traded company, Smith said.
Smith, speaking at the MSO’s analyst day in Philadelphia, said Comcast has made its intentions known to Insight.
“That is on track to be broken up at the end of this year,” he added. “We can pull the trigger Dec. 31, 2005. We’ve made it clear, as of now, that certainly, that is our intent. We’ll end up getting half of those [1.3 million] subscribers.”
Insight CEO Michael Willner was not available for comment.
Smith also shed some light on Comcast’s plans for its other cable partnerships. He said the company’s interests in Kansas City Cable Partners and Texas Cable Partners with Time Warner Cable will be broken up by mid- to late 2006, with Comcast likely taking subscribers in southwest Texas and Kansas City.
Those two partnerships were another holdover from the AT&T Broadband deal. Last year, both Time Warner Cable and Comcast agreed to restructure the partnerships, combining them into one entity and splitting the interest 50-50.
According to the agreement, either party has the right to trigger a breakup after June 1, 2006. After that, the nontriggering party gets to choose one of two pools of subscribers -- one in Houston, the other in Kansas City and southwest Texas. Together, the partnerships have about 1.5 million subscribers.
“More likely than not, what will happen come June of 2006, we’ll pull the trigger,” Smith said. “When we pull the trigger, we’ll put a value on the asset. It’s very clear that Time Warner wants Houston. It’s quite probable that unless we put too high a price on Houston, that they will end up getting Houston and we’ll end up with southwest Texas and Kansas City.”
However, he added, in that case, another swap would occur.
“We have arranged another swap with Time Warner -- basically we’re not interested in having assets in southwest Texas since we traded them Dallas as part of the basic [Adelphia] transaction,” Smith said. “That will more likely than not occur in mid- to late 2006.”
Smith would not elaborate on what other Time Warner Cable systems could be involved.
Comcast is also interested in unloading the $1.5 billion in Time Warner Inc. stock it acquired as part of the AT&T Broadband deal, and it is working with the media giant on a possible asset swap.
Although Comcast has had control of the stock since 2003 -- as part of the restructuring of the Time Warner Entertainment partnership -- it only became freely tradable March 31 of this year, Smith added.
Smith said that while Comcast could sell the stock on the open market, the MSO would have to pay about $500 million in taxes because it has a zero-cost basis.
“We’re trying to explore opportunities other than just selling it,” he added. “We’re trying to explore some kind of strategic relationship with Time Warner or how we might be able to use it in some other transaction.”
