About two months after it first went on
the auction block, West Point, Ga.-based overbuilder Knology
found a buyer in WideOpenWest and a price — $1.5
billion in cash — that should please its
investors.
Knology first went on the block in late
February, testing the waters in the wake
of earlier cable deals like Insight Communications
(purchased by Time Warner
Cable for $3 billion) and Bresnan
Communications (sold to Cablevision
Systems for $1.4 billion). At the time, the
company had hoped to attract a price
between $1 billion and $1.5 billion.
The purchase price came in at the
top of that range, and the multiple paid
(about 7.3 times 2012 estimated cash
flow) is in line with some incumbent cable
deals.
Insight sold in February for about 8
times cash flow, and the Bresnan deal in
2010 was valued at 8.3 times cash flow,
according to Miller Tabak analyst David
Joyce. He added that as an overbuilder,
Knology was subject to a slight discount,
but not in the range of the 5.5 times fellow
overbuilder RCN received in 2010 when it
was purchased by ABRY Partners.
RCN operates in larger markets and
faces stiffer competition from
Verizon Communicat
ions’ FiOS
product and from
large cable operators
like Comcast,
Joyce added. Knology
operates primarily
in smaller
markets with little
FiOS exposure.
“Did we expect
it to get the
5.5 [multiple] that
RCN was getting?
Absolutely not,”
Joyce said.
According to
the deal, WOW
will pay Knology
shareholders $19.75 in cash for every share they own, a
9% premium to the overbuilder’s closing price of $18.05
on April 17. Shares are up more than 36.6% for the year, almost
entirely on deal speculation. Knology had been trading
at $15.81 each on Feb. 28, the day before a story broke
in the The Wall Street Journal stating the
company was looking for buyers.
The combined companies will have
more than 800,000 customers and pass
2.8 million homes in 13 states — making
it the 13th largest pay TV distributor
in the country, ahead of Cable
One, which has about 628,000 video
customers.
Joyce expects the deal to close in seven
to nine months, adding that WOW and
Knology are a good fit in that they operate
in similar territories — smaller communities
in the Midwest and Southeast.
WOW’s main strongholds are in Michigan,
Illinois, Ohio and Indiana, while
Knology operates in Alabama, Florida,
Georgia, Iowa, Kansas, Minnesota,
South Carolina, South Dakota and Tennessee.
Joyce called the systems “very complementary,”
adding that he expects the
combined entity to be on the hunt to expand
its footprint even further.
“I would expect them to continue to be
active with other cable-system sales and
swaps,” Joyce said.
In announcing
the deal, WOW
chairwoman and
CEO Colleen Abdoulah
noted that
the two companies
have similar
philosophies.
“WOW! and
Knology are a natural
fit; together,
our people, network
and operating
infrastructure
will combine to
provide a strong
platform for cont
inued growth,”
Abdoulah said in
a statement.
DEAL POINTS
Price: $1.5 billion
($19.75 per share)
Combined Subscribers: 800,000
Combined Homes Passed: 2.8 million
Territories: WOW operates in Michigan, Illinois, Ohio
and Indiana; Knology operates in Alabama, Florida,
Georgia, Iowa, Kansas, Minnesota, South Carolina,
South Dakota and Tennessee.
SOURCE: Company reports
