New York -- Insight Communications Co. became the first
pure cable company in more than a decade to test the public markets with its filing last
week for an initial public offering to raise $517.5 million.
Insight's IPO -- expected in the second half of the
year -- will make it the first major cable operator to enter the public market since Cox
Communications Inc. was spun off from Cox Enterprises Inc. in 1995 after its acquisition
of Times Mirror Corp.'s cable assets.
But the last true IPO in the cable sector was way back in
1986: Cablevision Systems Corp.'s 6.25 million-share offering.
Insight was just one of many cable operators that were
expected to test the public markets this year. Others expected to join the IPO club
include Falcon Cable TV Corp., Mediacom LLC and Charter Communications.
Many analysts have speculated that a Charter IPO would
fetch between $2 billion and $3 billion, based on its size (about 3.4 million subscribers)
and its largest investor, Microsoft Corp. cofounder Paul Allen.
Insight -- which has about 1 million subscribers in six
states -- said in a prepared statement that it plans to use the proceeds of the offering
to finance its acquisition of 424,000 customers in Kentucky from InterMedia Capital
Partners VI; to introduce new products and services; and to make an equity investment in a
telephone joint venture with AT&T Corp.
Insight agreed to purchase a 50 percent interest in
InterMedia Capital Partners for $750 million in cash and assumed debt in April. The
proceeds will also be used for other strategic acquisitions and general corporate
purposes.
The number of shares to be offered to the public and the
price of the shares has not been determined.
Although no price has been set, SG Cowen Securities Corp.
analyst Gary Farber said Insight should have no problem reaching its target.
"There is somewhat of a scarcity value built into
these stocks," Farber added.
Aside from providing cash for acquisitions, Insight's
IPO could also allow the company to use stock as deal currency for future purchases.
Stephens Inc. analyst John Corcoran said that with cable
valuations higher than ever, Insight couldn't have picked a better time to enter the
public fray.
"If you're a midsized cable operator, you have to
ask yourself, 'When has the macroeconomic environment ever been more
favorable?'" Corcoran said. "The bottom line is that the macroeconomic
stars are aligned almost perfectly."
Cable stocks have been on the rise ever since Comcast Corp.
was able to convince Microsoft Corp. to invest $1 billion in the MSO in 1998. The recent
deal frenzy and the potential of advanced services -- including high-speed Internet
services and telephony -- have driven cable stocks to their highest levels ever.
Although it is smaller than some of the other publicly
traded cable operators, Insight does seem to fit the bill of the modern major cable
company.
Despite operating in midsized markets, it has spent a good
amount of money -- $47 million this year in capital expenditures, according to its
prospectus -- on upgrading its systems.
The company also offers Internet access in some of its
systems, and it plans to offer digital video and video-on-demand services in the near
future.
"What gets you into the game is owning cable assets,
but it doesn't get you to the finish line," Corcoran said. "You need new
services to tap into the cash-flow streams that justify high valuations. The whole idea is
to increase revenue per subscriber by an order of magnitude, while using a tiny slice of
your total bandwidth. That's what Insight is positioning itself to do."
As of March 31, about 40 percent of Insight's cable
plant was at less than 450 megahertz, with 27 percent greater than or equal to 750 MHz.
The company plans to have more than 90 percent of its network at greater than 750 MHz by
the end of next year.
The company had revenue of $375.7 million in 1998, and
EBITDA (earnings before interest, taxes, depreciation and amortization) of $178.6 million,
according to the prospectus.
Chairman Sidney Knafel and president Michael Willner formed
Insight in 1985 as a partnership with a small group of investors, including Continental
Cablevision Inc., the third-largest cable operator in the country at that time.
After U S West Media Group (now MediaOne Group Inc.)
acquired Continental in 1996, Insight reached an agreement to repurchase MediaOne's
interest in the company by the end of 1999.
Insight had planned to sell out to St. Louis-based Charter
in 1998, but when that deal fell through, it decided to go on an acquisition binge
instead.
Since then, Insight purchased a 67,000-subscriber system in
Rockford, Ill., from Cablevision Systems Corp. for $97 million, and it formed a joint
venture with TCI Communications Inc. (now AT&T Broadband & Internet Services) with
325,000 subscribers in Indiana.
The company also bought a 75 percent control stake in
Coaxial Communications' Columbus, Ohio, system, with 91,000 subscribers, for about
$170 million. And it has systems in Griffin, Ga., and Claremont, Calif.
Although it is characterized as a midsized MSO,
Insight's strategy has been to focus on properties with at least 100,000 subscribers
per headend and attractive demographics.
