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Whoa! WOW Buys Knology for $1.5B

The consolidation of the nation's Tier 2/3 MSOs continued Wednesday as WideOpenWest Holdings LLC (WOW) plunked down US$1.5 billion in cash to acquire Knology Inc. (Nasdaq: KNOL), a cable overbuilder that's been on a mini-M&A tear of its own. (See WOW! Buys Knology .)

With the addition of Knology, WOW will become the nation's thirteenth-largest pay-TV operator, with about 800,000 customers and 2.8 million homes passed in 13 states combined.

There's no system overlap, as both companies primarily operate cable networks that compete with incumbent MSOs such as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Bright House Networks , Charter Communications Inc. , Mediacom Communications Corp. and Time Warner Cable Inc. (NYSE: TWC), depending on the market. WOW's current footprint touches parts of Michigan, Illinois, Ohio and Indiana, while Knology serves pockets of Iowa, Kansas, Minnesota, South Carolina, South Dakota and Tennessee.

WOW is paying $19.95 per share, a 34 percent premium on Knology's average closing share pricing during a three-month period in which reports have speculated that WOW was preparing a bid for Knology. Knology shares were up $1.27 (7.04%) to $19.32 in early trading Wednesday. (See Knology Surges on M&A Speculation .)

Knology ended 2011 with 1,861 full-time employees, according to its 10-K. WOW Chief Marketing Officer Cathy Kuo declined to comment on any potential organizational changes coming as a result of the deal, but noted that the WOW and Knology teams will be working together over the next couple months on future plans.

Why this matters
The combination gives WOW more scale, which could help in programming and equipment negotiations and help it compete with much larger MSO and satellite TV rivals. Knology is also getting access to an upgraded broadband infrastructure and to new markets such as wireless backhaul. Knology, for example, has invested $9.7 million since 2009 to grab a 12 percent stake in Tower Cloud Inc.

It also marks another round of consolidation for the nation's Tier 2/3 MSOs. Knology has typically been on the buying end of that, as it has recently acquired Sunflower Broadband and Private Cable Co. LLC. More M&A moves may be on the way, as Wave Broadband is also reported to be on the block.

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— Jeff Baumgartner, Site Editor, Light Reading Cable

davisee 12/5/2012 | 5:35:59 PM
re: Whoa! WOW Buys Knology for $1.5B

knology also operates in florida, georgia and alabama. i say wave goes to charter. whos next for avista? hargray and buckeye would be good fits. parts of cincy bell? hiawatha bb, cinergy metronet or florida cable???

Jeff Baumgartner 12/5/2012 | 5:35:56 PM
re: Whoa! WOW Buys Knology for $1.5B

I think Wave to Charter is a good guess. And this trend makes me wonder about the future of the larger tier 2s such as CableOne  and an overbuilder like RCN, which went private not too long ago.  If WOW could pull it off someday after they integrate Knology, they could try to pick up RCN and get access to some larger markets and gain even more scale. Or could that scenario somehow be turned around? After all, Knology was on the buying end several times before it got bought. 

Perhaps anyone outside the Top 10 of the largest US MVPDs could end up on the list of sellers, though I'd be surprised to see Mediacom or Suddenlink try to sell. Maybe they'd be on the buying end. JB

davisee 12/5/2012 | 5:35:45 PM
re: Whoa! WOW Buys Knology for $1.5B

i agree with many of your points, the m&a drums are getting louder! hargray is available although i heard the price is too high! wow with knology is the best fit for hargray. i think the post has been waiting on selling cable one off. it would be a great fit for suddenlink and even mediacom to a lesser extent. maybe they should team up on a bid and split the ops 300k subs each. abry has split the RCN res & b2b business and could sell off the residential op, maybe in a combination with grande in texas! wow with rcn is possible, abry used to own wow, they dont overlap in chicago and may have advantages with verizon ending its buildout in boston, etc. i say cablevision will finally go private, but only if its a sure thing. if not, dont count out at&t as a possible buyer of the ny and nj ops. with ct going to comcast or charter. they could even keep optimum west and financially benefit from a swap for ct with comcast for spokane wa and other western clusters and comcast's 50% of midcontinent in the upper plains. the next big one will be a year or so and will be cox cable, but the only way may be with comcast, twc/brighthouse splitting it up.


Jeff Baumgartner 12/5/2012 | 5:35:41 PM
re: Whoa! WOW Buys Knology for $1.5B

Those are some interesting and plausible scenarios. The notion of Cable One being in this potential M&A group came up in a conversation yesterday, though apparently the idea that they could sell came up a while back.

Cox and Charter have come up before as potentials, but you have to wonder what the long term situation will be at Charter with Rutledge at the helm. He's there to get growth going, but if he's successful will Charter be the buyer or the seller?

You really think ATT would consider buying back into cable? I'd think their experience with TCI would make another move unlikely. JB

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