Cablers eye Dow

Five companies to pursue IPO paydays

NEW YORK — With cable stocks trading at record highs, at least five cable operators are planning to go public in coming months with stock offerings worth a combined total of more than $3 billion, Wall Streeters said Monday.

Investment bankers predict the offerings will be well-received because a spate of cable acquisitions in the past year, including those involving Tele-Communications Inc., MediaOne Group and Century Communications, have reduced the number of publicly traded cablers and increased demand for new cable stocks.

Charter chief IPO

The biggest offering will be Paul Allen’s Charter Communications, which has made little secret of its plans to go public in the near future with an offering expected to raise at least $2 billion (Daily Variety, March 9).

Four other cable deals, expected to raise between $200 million and $400 million each, are also planned.

New York-based Insight Communications and California-based Falcon Cable have both hired Wall Street firms to underwrite their offerings and are likely to file papers for their IPOs within a month, Wall Streeters said. Neither Insight nor Falcon would comment.

Additionally, New York-based Bresnan Communications is interviewing Wall Street banks about an IPO, and also is expected to file papers shortly. Bresnan did not return a call seeking comment.

Classic Communications of Texas, which recently agreed to acquire Buford Television for $300 million, is also planning to go public, although it has not yet hired an underwriter. Classic declined comment.

Just the beginning

The five upcoming IPOs are not likely to be the last. Mediacomm, a New York-based cabler that agreed last week to buy the Triax Midwest cabler for $740 million, is contemplating going public later this year.

“Given the state of the market today and how the market values cable, and given our size, (including) Triax … going public is certainly a compelling option that we now have,” said Mark Stephan, chief financial officer of Mediacomm, although he emphasized the company has no imminent plans for an IPO.

Most of these cablers are owned by a variety of financial investors and management although two — Falcon and Bresnan — are half-owned by AT&T (through its recently acquired Tele-Communications Inc.). In both cases, TCI turned over management of some systems to the smaller operators in exchange for equity.

Cable’s surge on Wall Street reflects the improving finances of most major cablers and their rollout of new services including high-speed Internet access. Cable stocks have rallied to new highs in the past few days since AT&T won the battle for MediaOne.

“There is a lot of pent-up interest for pure play cable,” one investment banker said Monday, predicting there would be “enough demand to accommodate” all of the upcoming deals.

Aside from Charter, which has 3.5 million subscribers and is the sixth-biggest cabler in the wake of AT&T’s acquisition of MediaOne, none of the cablers has more than about 1 million subscribers.

Falcon and Insight are both at the million-subscriber mark; Mediacomm will hit 725,000 subscribers once its Triax acquisition is completed; Bresnan has about 652,000; and Classic will have 360,000 once its Buford deal closes.

Reduced expectations

As a result of their smaller size, Wall Streeters say the offerings will get lower valuations than the leading cablers. While companies like Comcast Corp. and Cox Communications, the third- and fifth-biggest cablers, respectively, are trading at 17 to 18 times year 2000 cash flow, smaller cablers likely will be valued at about 12 times year 2000 cash flow, analysts said. Cash flow is earnings before interest, taxes, depreciation and amortization, and is the main indicator used by analysts to measure profitability in cable.

Smaller cablers get lower valuations because their size makes them less efficient than bigger operators in offering latest products like high-speed online access and telephony, and also because they tend to have less stock available for trading by investors, Wall Streeters said.

Still, one analyst said Monday a cash-flow multiple of 12 was higher than execs from these smaller cablers “ever dreamed of.”

Industry execs said money raised from offerings will help cablers upgrade their systems, allowing some of their existing owners to sell some or all of their stake, and make it easier to do stock acquisitions.

“The currency for acquisitions is an extremely important factor,” one exec said.