Cable Operators

Knology Deal Should Boost Margins

4/06/2007 8:00 PM Eastern

Miller Tabak media analyst David Joyce maintained his “buy” rating and increased his 12-month price target on Knology to $19 per share from $18 per share after the West Point, Ga.-based overbuilder completed its $255 million acquisition of PrairieWave Holdings three months ahead of schedule.

Knology completed the Prairie Wave acquisition on April 3, a deal that will add about 57,000 residential subscribers in Rapid City and Sioux Falls, S.D., to the Knology fold. Knology first announced the deal in January and had expected it to close sometime in the second quarter.

In his report, Joyce wrote that as a result of the closing, he estimates that the deal will add about 230 basis points to Knology’s operating cash flow margins for the full year rising to 31.8% in 2007. Joyce also raised his second quarter revenue estimate to $93 million (from $70.6 million) and operating cash flow to $28.8 million (from $20.1 million) as a direct result of the PrairieWave deal.

Joyce expects Knology to end the second quarter with 229,000 basic subscribers. Free cash flow (cash flow after capital expenditures and interest payments are made) estimates remain unchanged at $6 million for the quarter.

For the full year, Joyce predicts that revenue will reach $352.8 million, and operating cash flow will be $108.2 million.

Knology said it will finance the transaction with a $555 million first lien term loan facility to cover the purchase price, refinance any PrairieWave debt and to pay related transaction costs.

September