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Time Warner Cable Sells 80k Subs

7/11/2008 8:00 PM Eastern

Time Warner Cable said last Thursday that it has reached an agreement to sell systems in several non-strategic markets, with about 80,000 subscribers, to Windjammer Communications for an undisclosed sum.

The systems have been on the auction block since spring. New York-based cable investment banker Waller Capital is said to have advised Time Warner Cable on the sale. Waller, which is also handling the auction of several non-strategic Comcast systems with about 400,000 customers, declined comment.

Windjammer was created specifically for the deal and consists of Boston private-equity concern MAST Capital Management and Jupiter, Fla.-based small cable operator Communications Construction Services. According to Time Warner Cable, CCS specializes in providing voice, video and data services to military personnel and supplies service to more than 200 military facilities in the continental U.S. and Hawaii.

The price of the deal was not disclosed, but Time Warner Cable said in a statement that its second-quarter results will reflect a $45 million loss on the sale of the systems.

In a research note, Miller Tabak analyst David Joyce estimated that the systems could have fetched between $160 million and $280 million, based on valuations of $2,000 to $3,500 per subscriber. He estimated that they were likely acquired as part of TWC’s Adelphia Communications purchase, which was valued at $3,500 per customer. The $2,000-per-sub valuation is based on TWC’s overall trading multiple of $2,888 per subscriber, he wrote. Still, Joyce added that valuations could vary widely given the differing conditions of the systems.

According to the press release, the systems are located on 125 headends in 25 different states. With 80,000 subscribers, that means that each headend has roughly 640 subscribers, indicating that those systems are extremely rural in nature.

Cable-community executives familiar with the deal suggested that, while the systems do need upgrades, there is the potential to offer high-speed data and telephony: The 120,000 revenue-generating units average only about 1.5 services per customer. “That means that they’re not offering much high-speed data and no voice service,” one executive said.

Time Warner Cable expects to close the deal during the fourth quarter, subject to customary regulatory approvals.

September