NEW YORK — John Malone’s Telecommunications Inc., the largest multisystem cable operator in the U.S., has sold most of its smaller cable systems in Oregon, Washington, Missouri, Alabama and California to 12th-largest MSO Falcon Cable TV.
Sources said that in exchange for the systems, which reach a total of about 300,000 cable subscribers, TCI will get a 40% stake in Falcon. The 300,000 subscribers are worth $600 million, and at nine times cash flow, the 40% Falcon stake is worth about $400 million. Falcon will get a bank loan for the $200 million difference and funnel it to TCI, sources said.
“Falcon will become an affiliate of TCI, which means for example, that it’ll get the same license-fee discounts from cable networks that TCI gets,” one insider said. “But Falcon will continue to run the company.”
The individual stake owned by Marc Nathanson, chairman and CEO of Falcon, will stay at 37% when the TCI deal goes through. But the share in the company of Nathanson’s investors will shrink from 63% to only about 18%. Falcon’s main investors are the AT&T Pension Fund, Hellman & Friedman (another pension fund), the government of Singapore and Boston Ventures.
The insider said the deal was a no-brainer because all of the systems Falcon is getting are small-market systems, which is where Falcon’s expertise resides. “Falcon’s operating margins are in the mid-50s, whereas TCI’s are in the mid-40s,” allowing Falcon to pull more revenue out of the cable systems, the insider added. In the Falcon deal, TCI will keep its Oregon systems in Portland and Seattle as part of its new focus on large urban markets.