Old article from Hoover's below. Just came across it. Thought I had read it all. Focus on cash flow; debt and loss reduction in time. Losses will be write offs for PA initially. Then gains will recover those losses (after all his stake and downside is relatively much greater than ours, and thats got to be worth something).
In the meantime, the nimble Charter Comm, smartly controlled by few, grows, morphs, and evolves into whatever is necessary to achieve the wired world in the most efficient manner(already seeing evidence of strategy in motion with creation of Broadband Partners) and able to quickly adjust to the mistakes of its larger brethren.
The investment here is in the wired world concept, its potential, its implementation, its validity. The investment here is also in the visionary whose net worth is a testament to the quality of his vision.
One post on this thread has mentioned dumping shares on any opening pop. Although, this may be tempting, all one has to do is consult (or console) an investor who held early shares of MSFT, AOL, DELL, INTC, etc. and dumped them for an early handsome but relatively insignificant profit. Buy and hold investing is still alive and well despite this swing traders market. And shares of this vision will realize their true value. (I better go back to decaf). YZ
Putting Stock In Paul Allen
By Kimberly Weisul, Inter@ctive Week
August 23, 1999 9:17 AM ET
Laughing all the way to the bank is nothing new for Microsoft co-founder Paul Allen, the third-richest person in the U.S.
Which is why analysts think that Allen, despite his hodgepodge of investments, is looking for more than just a cash infusion with his upcoming initial public offering (IPO) for Charter Communications, his largest communications investment. He instead may just be building an interactive services and communications powerhouse.
"If he was in it just for the money, he would have sold a while ago," says Tom Taulli, an IPO analyst at Edgar Onlne. "He wants to really make it work."
Investors in the IPO "are buying into a vision that is probably starting to be shared by other cable companies. Buying cable television systems for them was never the endgame," says Joseph Duggan, a partner at telecommunications investment banking boutique Waller Capital. Instead, generating revenue from interactive programming, shopping and information may be at the other end of the rainbow.
Allen's venture fund, Vulcan Ventures, has invested in companies such as Wink Communications, an interactive TV player, digital TV start-up TiVo and portal Go2Net.
"I think people are going to buy into the fact that this is one smart guy," Duggan says. Although Allen has yet to make final Securities and Exchange Commission filings for Charter, Duggan says investors would be "crazy" not to give the company a premium over other cable companies.
Charter has spent about $20 billion on acquisitions since 1984. When its pending acquisitions are completed, it will be the fourth-largest cable company in the U.S., with 6.2 million subscribers. Next year, the company will begin a $5.5 billion capital expenditure program that will run through 2002, including $2.9 billion for bandwidth upgrades. Allen himself will make an additional contribution of $750 million, and Vulcan Ventures will invest an additional $1.3 billion.
Charter has filed to raise up to $3.45 billion. If its pending acquisitions had been completed, it would have had cash flow of $1.2 billion in 1998, on revenue of $2.7 billion.
Pro forma losses were $791 million, but cable companies, often heavily indebted, generally are valued on cash flow.
Duggan says Charter could garner a valuation of 18 to 20 times cash flow in its IPO. Using past cash flow numbers, that could equal $24 billion, but investors likely will use expected future cash flows, boosting the valuation significantly. Insight Communications, the 10th-largest cable operator, went public July 21 and was valued at 15 times projected cash flow.
Analysts aren't worried about Charter's $10.4 billion in debt either. MediaOne Group, the No. 3 cable operator, had debt of $5.4 billion at the end of last year; Comcast had $5.6 billion. "Debt is par for the course for a cable company," says Michael Harris, president of Kinetic Strategies.
In 1996, Adelphia Communications' outstanding debt was more than 12 times its market valuation; that number has dropped to less than two times.
If Allen is able to make even part of his "wired world" strategy come together, the opportunity for revenue growth is substantial. The average cable subscriber brings in about $35 per month, Harris says. With a modem, that number is doubled; telephone access can add another $40.
Which is not to say the offering is risk-free. The shares being offered to the public don't carry the same voting rights as Allen's shares, so unhappy shareholders will have little recourse.
The risk lies in proper execution.
Excite, the front end for competitor @Home, is in a "different league" from Allen's Go2Net, says Melissa Bane, director at The Yankee Group, although Allen has earmarked $500 million to beef up the portal site and integrate it with his other holdings. "There's always a quest for vertical integration, but the reality isn't always as wonderful as the promise," she adds.
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