Charter buys AT&T system for $1.8 billion

After years of trying to dominate its home market of St. Louis, Charter Communications Chairman Jerry Kent scored, landing AT&T's half of the area in a wide-ranging $1.8 billion system deal.

The deal is part of AT&T Broadband's move to unload systems outside its core metro clusters, like Seattle and Chicago and use the proceeds to pare debt. St. Louis-based Charter and its predecessor company, Cencom, have owned systems in the suburbs serving 260,000 subscribers for years, but Kent has longe for the 245,000 subscribers in the city owned by AT&T and its predecessor, Tele-Communications Inc.. Kent will now have more than 90% of the market.

But St. Louis is only half the 512,000 susbscriber deal. Charter will get systems serving 156,000 subscribers Nevada, including both Reno but also plenty of small, less attractive towns. Charter also gets systems 147,000 subscribers in Alabama, where the company already has major operations.

Charter will cover about 60% of the $1.8 billion price with cash. Kent is paying up to $500 million in Charter Common stock and trading away systems in Miami Beach and Sebastian, Fla., markets where AT&T has nearby cable operations.

The deal comes to $3,500 per subscriber and around 16 times cash flow. That's less than the huge $5,500-$6,000 per sub and 20 times-plus deals from last year, but those were for high-growth properties and this deal is not. "Reno's great, but we're talking some pretty small places," said one cable executive familiar with the systems.

Kent was enthusiastic about the deal, even though it may push his leverage to a precariously high 7.8 times annual cash flow. "his is a teriffic transaction," he said. "All of these systems are top notch quality properties."
Combined with Tuesday's $2.2 billion deal to sell systems in four states to Medicom, AT&T will be able to repay $3.5 billion of its $30 billion in long-term debt.
- John Higgins