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Cable Operators

Charter Seeks L.A. Buyer

5/02/2011 12:01 AM Eastern

After a swap with Time Warner Cable
for its Wisconsin systems failed, Charter Communications
is considering selling its coveted Los Angeles system, and
has selected investment bankers to handle a possible auction
that could fetch more than $2 billion, according to people
familiar with the situation.

Sources in the cable investment-banking community confirmed reports last week that Charter has hired Goldman
Sachs and Citigroup to lead the auction process. People familiar
with the matter last week said St. Louis-based Charter
began to consider a sale after a plan to swap Los Angeles for
Time Warner Cable’s Wisconsin cluster fell through.

Charter has about 551,000 subscribers in California,
including parts of Los Angeles, Long Beach and Whittier.
Those properties would have meshed well with TWC’s
existing 1.8 million customers in Los Angeles.

A Wisconsin swap would have made sense for Charter —
it already has about 537,000 customers in Madison and other
areas of the state, which would have grown to about 1.1 million
with the addition of Time Warner Cable’s 560,000 customers
in Green Bay, Milwaukee and Appleton, Wis.

FORT WORTH INCLUDED

According to people familiar with negotiations in the cable-
investment community, Charter is sweetening the pot
by including its 178,000-subscriber Fort Worth, Texas system
in any deal, which could also be attractive to Time Warner,
which has about 600,000 customers in nearby Dallas.

“This is an attempt to get Time Warner Cable to step up
and do something,” said one cable executive who asked not
to be named.

Time Warner Cable declined comment on a possible
Charter swap. On a conference with analysts to discuss
first-quarter results, Time Warner Cable chairman and
CEO Glenn Britt said that if the L.A. system were for sale,
the MSO would treat it like any other potential acquisition.

“We’re going to evaluate it like we look at all acquisitions
and look at what it would look like under our ownership
and apply or cost of capital to it and all the synergies and
what have you, and evaluate it versus other investment alternatives
such as buying our shares back,” Britt said. “We’ll
come out wherever we come out.”

Charter also declined to comment, citing its policy concerning
rumor and speculation.

While Time Warner Cable is the logical buyer for the Charter
systems, it is also the most logical suitor for another cable
property on the auction block — Insight Communications’
691,000 customers in Indiana, Kentucky and Ohio. But Insight’s
asking price — reportedly between $3.5 and $4 billion
— has so far kept Time Warner Cable on the sidelines.

The Los Angeles and Fort Worth systems could attract
between $1.8 billion and $2.7 million, according to Miller
Tabak media analyst David Joyce. Add to that a $4 billion
open-ended share repurchase commitment and a recent
20% increase in its quarterly dividend and the cable giant
would have a lot to swallow.

OTHER LIKELY SUITORS

That would leave other parties to fight it out for the Los Angeles
market. According to some analysts, Cox Communications,
which has a cluster in nearby San Diego; and Comcast,
which has no systems in the market, but whose NBC Universal
joint venture owns broadcast-television stations in the
area, are possible strategic suitors. And some would not rule
out Cablevision Systems, which let its appetite for systems
outside the New York City area be known last year, when it
purchased Bresnan Communications for $1.365 billion.

In addition, financial players like private-equity firm
ABRY Partners and others have shown interest in cable
properties in the past.

September