Mediacom LLC last week became the latest cable operator to
throw its hat into the IPO ring.
Mediacom, which has about 750,000 pro forma subscribers in
second-tier markets across the country, said it would use the planned $345 million
proceeds from its initial public offering to repay debt and make more deals. The company
did not say how many class-A shares will be offered or at what price.
Mediacom -- to be called Mediacom Communications Corp.
after the offering -- is expected to attempt the IPO in January or February.
Mediacom's could be the fourth cable IPO since July,
when Insight Communications Co. Inc. sold $600 million in stock. Charter Communications
followed with a $3.7 billion IPO Nov. 9. Another secondary-market MSO, Classic
Communications Inc., is expected to attempt its $137 million IPO in December.
PaineWebber Inc. vice president of research Thomas Eagan
said Mediacom might be a welcome addition for potential cable investors.
"We're getting a great breadth of different
sizes," he said of the Charter, Insight, Classic and Mediacom offerings.
"Companies that were small-cap are now medium-cap, and companies that were medium-cap
are now large-cap. There are certain investors that can't buy beyond a certain size.
This allows those investors to get in on the market."
Mediacom is headed by former Cablevision Industries chief
financial officer Rocco Commisso, who will control the company's class-B supervoting
shares after the offering, according to the prospectus. Commisso declined to comment,
citing the company's "quiet period."
Commisso is a familiar figure in the cable community and a
frequent panelist at industry conferences. Noted for his straightforward, no-nonsense
style, he built his mini-empire from scratch, creating one of the biggest operations below
the "big seven" MSOs in less than three years.
Commisso did that primarily through acquisition, starting
with a $315 million purchase of 265,000 subscribers from Cablevision Systems Corp. in 1997
and, most recently, a $750 million deal to buy Triax Midwest Associates LLC.
The Triax deal will nearly double Mediacom's
subscriber base to 740,000. A smaller fourth-quarter-closing deal -- the $21.5 million
purchase of Zylstra Communications Corp. -- will boost Mediacom's subscribers to more
than 750,000.
Mediacom has focused on second-tier markets, concentrating
on bringing more channel capacity and advanced services to markets that have primarily
been neglected by its larger peers.
The company has been working on tightening its clusters,
and its strategy has been to go after systems where it could significantly reduce headends
and keep the costs of upgrades and offering new services as low as possible.
Mediacom has also been stingy in its acquisitions, rarely
paying more than $2,000 per subscriber for its systems.
In the third quarter, the company's revenue rose 13.8
percent to $39.1 million and its cash flow rose 20.3 percent to $17.8 million.
Mediacom has been aggressively upgrading, committing
roughly $400 million during the next three years to boost system capacity to at least
550-megahertz two-way in 90 percent of its systems. About 73 percent of its customer base
are passed by systems at 550-MHz to 750-MHz capacity, excluding the Triax and Zylstra
systems.
Although Mediacom has dial-up Internet services in several
markets, it expects to go into the high-speed-data market in a big way in the next few
years.
Earlier this year, it entered into a 10-year agreement with
SoftNet Systems Solutions Inc. to provide access to 900,000 homes passed for the
latter's ISP Channel service. In return, Mediacom received 3.5 million SoftNet
shares, or 13.7 percent of its outstanding stock, worth about $112 million.
Mediacom already has begun to launch ISP Channel in some of
its markets, passing about 78,000 homes. The company said it hoped to pass 155,000 homes
with the service by the end of next month.
According to some analysts, the SoftNet deal was the
catalyst that Mediacom needed to accelerate the upgrade of its systems, which they
believed, was of paramount importance before the company issued an IPO.
Underwriters are Credit Suisse First Boston; Salomon Smith
Barney; Donaldson, Lufkin & Jenrette Inc.; Goldman, Sachs & Co.; Merrill Lynch
& Co.; Chase Securities Inc.; CIBC World Markets; and First Union Corp.
