Cable Operators

Insight Auction Down to Three Bidders

6/27/2011 12:01 AM Eastern

The months-long auction for Insight
Communications is winding down, with the field whittled
down to three strategic bidders — Mediacom Communications,
Cablevision Systems and WideOpenWest
— sources familiar with the auction said last week.

Insight, which has about 693,000 basic-video subscribers
in Indiana, Kentucky and Illinois, went on the block
in March and is reportedly asking for as much as $3.5 billion
to $4 billion. Bank of America Merrill Lynch and UBS
AG are running the auction for Insight. Final bids are due
later this week.

According to sources familiar with the matter, several
bidders dropped out of the running in past weeks. They include
Suddenlink Communications, Charter Communications
and several private-equity funds, in part because
they could not justify the high asking price, estimated at
10 to 11 times Insight’s forward-looking cash flow.

NO CLEAR LEADER

That multiple forced Time Warner Cable,
which has several systems adjacent to Insight
markets, to sit the auction out.

WideOpenWest chief marketing officer
Cathy Kuo declined comment. Mediacom
also declined comment. In a statement, Cablevision
said, “It is the company’s longstanding
policy not to comment on rumors
or speculation.”

Sources familiar with the auction said
that no clear leader has emerged and the
possibility an outside bidder could swoop
in during the late innings still remains.

Each of the remaining bidders has its
own issues. Mediacom, the sources said,
is trying to raise sufficient equity for a competitive bid.

Cablevision is weighing whether it wants to dive into
another acquisition so soon after its $1.4 billion purchase
of Bresnan Communications last December.

And WideOpenWest, which already competes with
Insight in Columbus, Ohio, and Evansville, Ind., could
have potential antitrust difficulties.

Add to the mix a right of first refusal for any offer from
one of Insight’s current partners — Texas-based private
equity funds Crestview Partners and MidOcean Partners
— and the situation gets more complicated.

Crestview/MidOcean purchased a 42% interest in
Insight from The Carlyle Group in 2010 for an undisclosed
sum. Crestview/MidOcean could match any offer
from an outside bidder, buying out Carlyle’s interest,
and could block any deal that does not allow it to at least
double its initial investment. That, sources said, is the
main impetus behind the $3.5 billion to $4 billion asking
price.

While Insight would make strategic sense for all three
bidders, sources said that Crestview/MidOcean and Cablevision
may have the early advantage.

Several sources in the cable financial community have
characterized Carlyle, which backed Insight initially in
2006, as a motivated seller.

Should the final bids come in low, it could be an opportunity
for Crestview/MidOcean to buy out Carlyle at a modest
price. Crestview also has experienced management. Partner
Jeff Marcus started Marcus Cable in Texas in 1990, grew
it into a 1.1 million-subscriber powerhouse and, in 1998,
sold it to Microsoft co-founder Paul Allen for $2.8 billion,
who later combined it with Charter Communications.

Marcus also helped engineer Crestview’s first foray
into cable, buying Adelphia Communications’ 140,000-
subscriber Puerto Rico system (now called OneLink) in
2005, a property that is currently for sale.

Crestview also owns a 9.8% stake in publicly traded
Charter.

CABLEVISION’S STATUS

Cablevision has been on the hunt for new properties
since its Bresnan acquisition and, according to
Miller Tabak media analyst David Joyce, could
borrow another $3.89 billion and still be under
its stated maximum target leverage of five times
cash flow.

That’s not to say Cablevision would pay full
price for the asset. But it has the financial wherewithal
to keep the bidding interesting.

Although Insight is similar to Bresnan in some
respects — it’s a well-run midsized operator —
there is one big difference. The Bresnan deal
came with a $400 million tax benefit, equal to
Cablevision’s equity contribution and cutting the
acquisition multiple almost in half. There is no
indication that such a benefit would be included
in an Insight purchase.

INSIGHT: BY THE NUMBERS

Employees: 2,790

Key Markets: Louisville, Ky.; Columbus, Ohio; Evansville, Ind.

Homes Passed: 1.3 million
Basic Video Subscribers: 693,300

High-Speed Data Customers: 535,700

Telephone Customers: 301,600

SOURCE: Company

September