Charter Communications to Buy Falcon Cable TV for Cash, Stock
By LESLIE CAULEY
Staff Reporter of THE WALL STREET JOURNAL
Charter Communications, the fast-growing cable company owned by
billionaire Paul Allen, plans to acquire Falcon Cable TV for about $2
billion in cash and stock, and the assumption of another $1.6 billion in
debt, propelling the consolidation in the merger-mad cable-TV industry.
The deal between the two closely held companies,
which could be announced as early as
Wednesday, would add about one million
subscribers to Charter's existing base of about 3.9
million. This would give Mr. Allen close to five
million customers -- and counting. Pending the
completion of previously announced deals,
including yet another one that is likely to be
announced later this week, Mr. Allen's cable
business will have around 5.5 million subscribers.
This puts him squarely in the cable big leagues.
As of Tuesday night, the two parties were still
working on a definitive agreement, according to people familiar with the
matter, leaving open the possibility that the talks could stall. The people
close to the companies weren't anticipating any problems.
Mr. Allen is expected to pay around $3,600 for each of Falcon's
approximately one million subscribers. This is a fat price but still short of
the $4,600 that AT&T Corp. recently agreed to pay for MediaOne Group
subscribers.
Through St. Louis-based Charter, Los Angeles-based Falcon will get a
deep-pocketed partner with established ties to the cable and Internet
worlds. Falcon, along with the rest of the industry, has been spending
heavily to upgrade its cable TV lines to handle phone, interactive video,
high-speed data and Internet access. Still, only about 25% of Falcon's
systems are currently upgraded, a fact reflected in the relatively modest
per-subscriber price that Mr. Allen is paying. To help fund its upgrade
program and take advantage of the heated market for cable stocks, Falcon
had also been considering a public offering. Then Mr. Allen came calling.
Dream of a 'Wired World'
The deal, for Charter, would help further Mr. Allen's dream of creating a
"wired world" to combine high-speed access with advanced interactive
services. Mr. Allen, a co-founder of software powerhouse Microsoft
Corp., has been on a cable-buying spree over the past year.
Some of his bigger purchases
include St. Louis-based Charter for
$4.5 billion and Dallas-based
Marcus Cable Co. for $2.8 billion.
Mr. Allen, a big proponent of
high-speed services, recently bought
a major stake in Go2Net Inc., a
Seattle-based company that owns a
range of financial and community
Web sites. Mr. Allen has said he
plans to offer Go2Net services to his
cable customers -- another part of
the wired world.
To finance these dreams, Mr. Allen
has been considering selling shares of Charter to the public. Mr. Allen
recently confirmed that he is thinking of going that route, but indicated no
final decision had been made. If he goes forward with such a plan, the
initial public offering would be one of the largest ever in the industry.
The Falcon deal is the latest in a series of high-profile cable transactions
transforming the industry's competitive landscape. AT&T got the merger
ball rolling in June 1998 by announcing its intent to buy cable giant
Tele-Communications Inc. for $48 billion in cash and stock. A string of
smaller deals in the $3 billion to $5 billion range followed, building up to
Comcast Corp.'s announcement in March that it planned to buy
MediaOne for about $48 billion in cash and stock.
AT&T's Stunning Move
AT&T rocked Wall Street -- and Comcast -- by upping the ante a few
weeks later. The telephone giant offered $54 billion in cash and stock for
the Denver-based cable company. AT&T won the bidding war, but not
before making some concessions to Comcast.
The merger frenzy has helped push up cable valuations to record highs on
Wall Street, which has become enamored with the potential of
"broadband" cable lines -- industry parlance for upgraded cable lines. This
is one big reason a lot of closely held cable companies, including Falcon
and Charter, have been considering public offerings. Cable operators that
don't have the resources, or appetite, to upgrade their systems for
broadband are instead selling out. This is exactly what Falcon is doing.
Falcon's subscribers are strewn throughout 27 states, with pockets of
systems in the Pacific Northwest, where Mr. Allen has long been based.
Falcon is headed by Marc Nathanson, a respected cable veteran who is
expected to become vice chairman of the combined company, which will
retain the Charter name.
Falcon is 54% owned by the Nathanson family, and 46% owned by
AT&T. Under terms of its arrangement with AT&T, Falcon needed
AT&T's blessing before it could sell out to the Allen organization.
According to people familiar with the matter, Falcon got the green light
from AT&T last week, paving the way for it to work out a deal with
Charter. |
