×
You will be redirected back to your article in seconds

Allen acquires Marcus Cable

Nearly $2.8 billion changes hands in deal

Billionaire investor Paul Allen took the first step toward becoming a major player in cable Monday when he confirmed the acquisition of the nation’s 10th biggest cabler, Marcus Cable Inc., for $2.775 billion in cash and debt from a group of investment firms.

Marcus will be the first acquisition in cable for Allen, who made his money as co-founder of Microsoft but is now only a director of the software giant.

“We are going to look for other opportunities to expand Marcus going forward,” he said at a press conference in Dallas.

A perfect fit

Allen, whose previous media investments include a $500 million minority stake in DreamWorks SKG LLC and a stake in Barry Diller’s USA Networks Inc., said Marcus was “a perfect fit” for his investment strategy, which is focused on the convergence of computing, content and distribution.

Allen is putting in $1.4 billion to buy Marcus and assuming the cabler’s $1.375 billion of debt, a relatively small amount given his massive financial resources. Still owning 7% of Microsoft stock worth $16 billion, Allen has been selling close to $1 billion in Microsoft stock every quarter for the past two years, sources said.

Allen already has looked at other possible cable deals including some as big as Marcus, sources said. Allen could finance future deals through his own money, through debt on Marcus’ balance sheet or through a possible public offering in Marcus.

Bright prospects

Most observers said Allen’s investment in Marcus is another sign of cable’s bright prospects, like Microsoft Corp.’s billion-dollar investment in Comcast Corp. a year ago that sparked a dramatic rally in cable stocks. The rally continued Monday, as Tele-Communications Inc. rose 81¢ to $32.25, Comcast inched up 9¢ to $36.09 and Cablevision Systems Corp. climbed $1 to $66.37.

The investment is “an affirmation that cable provides the premier conduit into the home. He (Allen) is acting on his conviction about the future of cable,” said Marcus chairman Jeff Marcus, who is staying on to run the cabler.

Lehman Bros. analyst Larry Petrella said Allen is “another smart technology guy who believes cable systems are capable of providing a lot of services.”

Marcus, which was owned by investment firms including Goldman Sachs and Hicks Muse Tate & Furst, has about 1.1 million subscribers spread around six clusters of systems, including the L.A. basin and Dallas/Fort Worth. Its systems have been upgraded and are among the most technically advanced in the U.S., Marcus said

“Connective future”

For the past 20 years, Allen said, he has been investing in companies that fulfill his vision of a “connective future,” linking high-capacity distribution systems like cable, the personal computer and “the availability of compelling content.” He said he is “eager to work with” Marcus on developing the next generation of services.

These might include a video-on-demand system now being tested, Allen said, in addition to “transactional services” like home shopping.

Beat out others

Allen beat out several other bidders for Marcus, some — including a consortium of cable operators led by TCI– which had not even put in final offers. Observers said Allen’s offer, in addition to being as high in price as any of the others, was a good deal for Jeff Marcus because it allows him to continue running the business.

Bankers said Monday the price Allen is paying for Marcus highlighted the rising value of cable systems and is likely to keep prices high. The price is “a little under $2,500 a subscriber, which is where deals are getting done at” today, said Nationsbanc Montgomery Securities senior managing director Michael Yagemann, who advised Allen on the deal.

Yagemann said that, combined with the intense bidding for Prime Cable’s Las Vegas system, the deal suggests, “We are getting into a different valuation parameter” for cable. Marcus earned $230 million before interest, taxes, depreciation and amortization (cash flow) in 1997, and the price represents 11 times cash flow based on the first-quarter annualized earnings.

More Biz

  • Aretha Franklin'Clive Davis: The Soundtrack of

    Three Handwritten Wills Found in Aretha Franklin's Home

    While Aretha Franklin was thought to have died without leaving behind a will, earlier this month three documents were discovered by her niece and filed in court earlier this week, according to the Associated Press. Two handwritten wills, dating from 2010, were found in a locked cabinet, and another from 2014 was discovered in a [...]

  • WGA Agency Packaging Fight Placeholder Writer

    Gersh Agency Stirs Ire After Canceling Network Meeting for Former Client

    In a sign of hostility in the war between the WGA and Hollywood’s largest talent agencies, Gersh Agency has come under fire from TV and film writers for canceling a network meeting that it had arranged for a now-former client. Writer Jorge Reyes disclosed the incident in a series of tweets on Monday. Reyes asserted [...]

  • Streaming Placeholder

    TikTok Owner Preparing Streaming Service to Rival Spotify (Report)

    ByteDance, the Beijing-based owner of the TikTok video app, is developing a paid streaming music service aimed at the same emerging markets that Spotify and Apple are seeking to explore, according to a report in Bloomberg. The app could be introduced as early as autumn, according to the report, which adds that the company has [...]

  • Stranger Things

    Coca-Cola Will Revive New Coke in Alliance With Netflix, 'Stranger Things'

    A rush of TV watchers to streaming video has prompted Coca-Cola to test an interesting pour. Coca-Cola will bring New Coke back to market for a brief time, all part of a partnership with Netflix, which has featured Coke in its cult-favorite series “Stranger Things.” The third season of the series, set in 1985, will [...]

  • Doug Davis and Jodie ShihadehVariety Power

    Jodie Shihadeh Named Partner at The Davis Firm

    Jodie Shihadeh has been named Partner at The Davis Firm, PLLC. She joined the firm in 2011 and rose from associate to Managing Attorney and now partner. She graduated from Boston College and received her law degree from Fordham University School of Law in 2011. While still in law school she interned in the Business [...]

  • Peak TV Saturation TV Placeholder

    Nickelodeon Alum Keith Dawkins Sets Kidvid Partnership With Believe Entertainment Group

    Former Nickelodeon executive Keith Dawkins has partnered with Believe Entertainment Group to develop children’s programming. Dawkins will partner with Believe under his newly formed Rock Hill Media Ventures, which aims to advise companies in media, entertainment and sports on working with diverse and emerging talent. Dawkins previously spent 17 years at Viacom, most of which [...]

More From Our Brands

Access exclusive content