After months of speculation, RCN Corp. has reached a definitive agreement to
sell its cable systems in central New Jersey to private equity firm Spectrum
Equity Investors and former cable executive Steve Simmons for $245 million in
cash.
The systems have about 80,000 subscribers in several communities, including
Princeton, Chatham and Mendham.
Based on the sale price, the deal works out to about $3,100 per subscriber.
Once upgrade costs of about $44 million are included, the price per subscriber
rises to about $3,600.
Multichannel News reported in June that RCN was fielding offers from
several different bidders for the New Jersey systems, with bids coming in at
about $3,600 per customer.
'I think they bid down in the second round,' one source familiar with the
process said.
According to sources in the financial community, Simmons and Spectrum beat
out initial bids from Cablevision Systems Corp. and Washington, D.C.-based
private equity firm The Carlyle Group. AT&T Broadband was also said to have
expressed interest in the properties.
Once the deal is closed, the systems will be partly owned and managed by
Simmons. Simmons and Spectrum will form a new company for the properties,
Patriot Media & Communications, of which Simmons will be president and
CEO.
Simmons is a longtime cable executive, first with his own Simmons
Communications Corp., a 350,000-subscriber MSO. He sold that company in the late
1990s to write children's books, including the best selling Alice and
Greta series.
Earlier in his career, Simmons had served on former President Jimmy Carter's
domestic-policy staff.
Spectrum has also been an investor in the cable industry, most recently with
Galaxy Communications Inc., the Sikeston, Mo.-based MSO that emerged from
Chapter 11 bankruptcy earlier this year.
RCN -- which has been in financial trouble as the bottom has fallen out of
the telecommunications market -- said it would use the proceeds to reinvest in
its existing markets.
In a press release, the company said the New Jersey systems were
nonstrategic. The systems are former C-TEC Corp. properties RCN received after
C-TEC completed a restructuring that split it into three separate companies
(RCN, Cable Michigan Inc. and Commonwealth Telephone Enterprises) in 1997.
'Because the RCN business plan was founded on building our own network in
major metropolitan markets and bundling phone, high-speed Internet and cable TV,
central New Jersey's systems -- which were built years ago by others -- were not
a core part of our strategy,' RCN chairman and CEO David McCourt said in a
prepared statement.
'The sale makes very sound strategic sense for RCN,' he added. 'Although a
great market and cable property, central New Jersey wasn't critical to our
overall plan, and we can use the nearly quarter of a billion dollars in proceeds
from the sale to accelerate our growth in other markets.'
Morgan Stanley Dean Witter & Co. served as the lead financial advisor to
RCN, and Skadden, Arps, Slate, Meagher & Flom LLP & Associates served as
legal advisor.
