RCN Going Private Via $1.2B Sale

Shares in RCN Corp. jumped more than 20 percent Friday after the competitive cable overbuilder said it struck a $1.2 billion deal to be acquired by an investment fund managed by ABRY Partners. (See ABRY Makes $1.2B Play for RCN.)

The deal will enable RCN to join the ranks of Cox Communications Inc. and Insight Communications Co. Inc. , other public MSOs that have gone private in recent years. The move could help shield RCN from Wall Street scrutiny over subscriber growth and financial performance as it looks for new ways to fight stiff competition from the likes of Verizon Communications Inc. (NYSE: VZ), Time Warner Cable Inc. (NYSE: TWC), Comcast Corp. (Nasdaq: CMCSA, CMCSK), and the satellite TV giants.

The agreement with ABRY values each share of RCN at $15, which the companies said is a 43 percent premium over RCN's average closing share price during the last 30 trading days. RCN stock jumped $2.78 per share (22.7 percent), to $15.04 each, in midday trading Friday.

ABRY and RCN said their deal is expected to close during the second half of 2010. RCN also noted that the agreement allows it to shop for better offers from third parties through April 14.

RCN's move to go private comes about six years after Cox did it via an $8.35 billion deal with Cox Enterprises. One year later, Insight went private, striking a deal with co-founders Sidney Knafel and Michael Willner and The Carlyle Group LLC that valued the MSO at $2.1 billion. Insight and Cox executives have taken a much less visible profile in the cable industry since the companies went private. (See Insight Goes Private, Reports Q2.)

The operator, which counts 430,000 subscribers, began overbuilding cable MSOs in the late 1990s in New York, Washington, Boston, Philadelphia, and the Lehigh Valley in Pennsylvania. But its cable overbuild strategy saw the company's debt balloon, and it restructured through a voluntary bankruptcy proceeding in 2005.

ABRY is jumping in as RCN continues to show growth. In November, RCN reported third-quarter revenues of $192 million, up 3 percent year-on-year. Its cash flow increased 12 percent to $56.4 million from the third quarter of 2008.

In 1997, RCN became the first telecom provider to market a triple-play bundle of pay-TV, high-speed Internet, and telephone service, touting its brand in subways and outdoor advertising in New York City and other markets.

"We're also the first in many ways, although regional in nature, to reclaim the analog spectrum and go all-digital," RCN CEO Peter Aquino told reporters at an event TiVo Inc. (Nasdaq: TIVO) held in New York on Tuesday to unveil its high-end Premiere DVR product line. (See TiVo Building tru2way Version of New Interface, New TiVo DVRs Built for Web & Cable Content, and RCN Almost Done 'Crushing' Analog .)

RCN intends to offer TiVo Premiere as its primary DVR by the second quarter of 2010. It's hoping to use the product -- which retails at prices ranging from $300 to $500 -- to draw new subscribers and retain its existing base.

— Steve Donohue, Special to Light Reading Cable