STAMFORD, Conn., Feb. 7, 2013 /PRNewswire/ — Charter Communications, Inc. (NASDAQ: CHTR) (“Charter”) and Cablevision Systems Corporation (NYSE: CVC) announced today that they have entered into a definitive agreement under which Charter Communications Operating, LLC will acquire Cablevision’s Bresnan Broadband Holdings, LLC (“Optimum West”) for $1.625 billion in cash. Optimum West manages cable operating systems in Colorado, Montana, Wyoming and Utah that pass more than 660,000 homes and serve 304,000 video subscribers and 366,000 customer relationships.
“With this transaction, Charter will acquire some of the fastest growing cable assets in the United States,” said Tom Rutledge , Charter’s President and CEO. “These former Bresnan properties operate in growing communities, and the network, employees and customer base have been well served for many years. In particular, over the past two years Cablevision, as Optimum West, has grown video, Internet and telephone customers through the execution of a product and service strategy, which is the same as the one we recently implemented at Charter. Optimum West is an ideal fit for Charter and we anticipate an efficient integration process.”
Cablevision President and CEO James L. Dolan said, “We are proud of the value we created in the Optimum West properties. We made strategic investments in the cable system and significantly enhanced the network to provide our customers with more robust products and services. I am confident that our Optimum West team will continue to build on that success under new stewardship.”
The $1.625 billion acquisition price represents a purchase price multiple of 8.9x Optimum West’s third quarter 2012 annualized Adjusted EBITDA1 and a purchase price multiple of less than 8.0x Charter’s estimate of Optimum West’s first year Adjusted EBITDA under Charter. The transaction will be structured to deliver to Charter a full step-up in the tax basis of the acquired assets. Taking into account Charter’s estimate of the present value of this tax asset, the effective purchase price multiple is less than 7.0x the estimated first year Adjusted EBITDA. “Given the double digit growth profile of Optimum West, we view the implied purchase price multiple as attractive. In addition, the acquisition will increase our conversion rate of Adjusted EBITDA to free cash flow.1 At closing, we expect to be at 5.0x leverage and continue to target 4.0x to 4.5x over time,” noted Christopher Winfrey , Charter’s CFO.
Charter will fund the acquisition of Optimum West with $1.5 billion of committed bank financing to Charter Communications Operating, LLC, and liquidity from cash on hand and its revolving credit facility.
The transaction is subject to customary closing conditions, including regulatory approval. We expect closing to occur in the third quarter of 2013.
Credit Suisse and Goldman Sachs acted as financial advisors to Charter, and have also provided debt financing commitments for the transaction.
Citi and J.P. Morgan acted as co-lead financial advisors to Cablevision. BofA Merrill Lynch and Guggenheim Securities also provided financial advice to Cablevision. Sullivan & Cromwell LLP acted as legal counsel to Cablevision.
Use of Non-GAAP Financial Metrics
Adjusted EBITDA and free cash flow are not Generally Accepted Accounting Principles (“GAAP”) financial measures and should be considered in addition to, not as a substitute for, net loss or cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as net loss plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, and other operating (income) expenses, such as special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the business as well as other non-cash or special items, and is unaffected by capital structure or investment activities. These measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing.
Free cash flow is defined as net cash flows from operating activities, less purchases of property, plant and equipment and changes in accrued expenses related to capital expenditures.
Adjusted EBITDA and free cash flow provide information useful to investors in assessing performance and ability to service its debt, fund operations and make additional investments with internally generated funds.