NEW YORK — Joined by buyout firm the Carlyle Group, Insight Communications co-founders Michael Willner and Sidney Knafel on Monday moved to take the midsize cable company private in a $650 million deal that could prove a popular trend for the troubled biz.
Insight’s decision reflects growing consensus among cable operators that their stocks are being undervalued as the industry adjusts to competition from satcasters and even telecom companies, among other factors. Last year, Cox Enterprises — the country’s fourth-largest cabler — likewise went private.
Cox, and now Insight, argue investors will get a much better return by accepting the buyback offer.
Upon the news, some Wall Street analysts said other cable companies including Charter Communications and UBS could follow suit.
Insight is proposing to pay $10.70 per share in cash for all outstanding publicly held shares.
But some shareholders took immediate issue with the offer, filing a class-action lawsuit stating it was too low. Suit, filed in Delaware Chancery Court, is asking the court to enjoin the transaction.
Wall Streeters predicted Insight could be forced to up the offer, just as Cox did.
The offer price of $10.70 per share repped an 11% premium over Friday’s closing price for Insight’s stock of $9.68 per share and a 17% premium over the six-month average closing price.
In trading Monday on the Nasdaq, Insight stock made sharp gains, signaling it may indeed have to sweeten its bid. Shares rose $2.07 to close at $11.75, up a healthy 21.4%
Buyout by major shareholders and Carlyle was announced by Willner, Knafel and the buyout firm.
Carlyle also has been making forays into the exhibition biz in addition to eyeing some of Adelphia’s cable systems.
Buyout team said control of Insight, which operates cable systems in Indiana, Illinois, Ohio and Kentucky, would not change
“In today’s increasingly competitive environment, the continued leadership of our current management team will ensure that our customers can look forward to getting the same outstanding service and innovative solutions they have come to expect from the same people who serve them,” Willner said.
“Likewise, our employees can rest assured that it will be business as usual both during and after the transition process is completed,” he said.
The country’s ninth-largest operator with some 1.27 million basic subscribers, Insight said its board would empanel a special committee of independent directors to study the proposal, with assistance from outside financial and legal consultants.
The company’s major asset is Insight Midwest, which is owned 50% by Insight and 50% by Comcast. Buyout offer has no effect on the Comcast partnership, whose participants can trigger its right to exit the deal any time after the end of the year.
Buyout group has a 62% controlling voting stake in Insight.