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Charter buying Falcon cable
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May 26, 1999: 2:12 p.m. ET
$3.6B deal will create 4th-largest cable operator, boost Charter in California
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NEW YORK (CNNfn) - Charter Communications Inc., a St. Louis-based cable company owned by Microsoft co-founder Paul Allen, said Wednesday it will buy Falcon Communications L.P. of Los Angeles in a cash and stock transaction worth about $3.6 billion.
The deal, which further consolidates the hotly competitive cable industry, gives Charter entree to new markets in California, the Pacific Northwest, Missouri and North Carolina.
Charter will add an additional 1.2 million cable customers to its subscriber base for a total of about 5.5 million, making the company the nation's fourth-largest cable operator after AT&T (T), Time Warner Inc. (TWX) - the parent company of CNNfn -- and Comcast Corp.
Both Charter and Falcon are privately held.
Allen, a billionaire investor who co-founded Microsoft with Bill Gates, bought Charter last summer for $4.5 billion, and the Falcon purchase continues his buying spree. Last week, Charter agreed to buy Avalon Television, a regional cable TV operator, for $845 million.
In March, Allen announced he would invest $300 million in community Web site operator Go2Net Inc. (GNET) and seek a controlling interest in the firm. Allen also is negotiating two other smaller acquisitions, according to reports Wednesday in The New York Times and The Wall Street Journal.
Falcon's operations, "when combined with our other properties, are an excellent fit with Paul Allen's Wired World strategy," said Jerald L. Kent, Charter's president and CEO.
The companies did not immediately provide financial details of the transaction. The Wall Street Journal reported that the purchase consists of $2 billion in cash and $1.6 billion in debt.
The buyout totals about $3,600 per subscriber-- a steep price, but not as high as the approximately $4,600 that AT&T will pay in its $58 billion buyout of MediaOne. AT&T outbid rival Comcast for control of MediaOne last month.
Falcon's founder and CEO, Marc B. Nathanson, will become vice chairman of Charter. Nathanson, his family and the company's management control 54 percent of Falcon, while AT&T Broadband & Internet Services - the former Tele-Communications Inc. -- owns the remaining 46 percent.
The AT&T unit has approved the acquisition, the companies said.
Industry observers have speculated that Charter will go public in the second half of 1999 in what could be a huge IPO. "If market conditions are right, we certainly are considering it," Charter spokeswoman Anita Lamont told CNNfn Wednesday.
The acquisition of Falcon, currently the nation's eighth-largest cable company, is the latest in a string of big cable deals, as companies try to position themselves for the future to offer a wide array of Internet and high-speed phone services through cable lines.
The deal "creates a bigger player; and it creates a third option in the terms of high-speed Internet (companies), which is a good thing for the industry," said Tom Eagan; a cable industry analyst at PaineWebber.
Charter, through its cable lines, offers both television and high-speed Internet access. The two leading firms in the high-speed Internet connection industry are @home (ATHM) and Road Runner, which is partially owned by Time Warner.
Eagan said he anticipates that the cable industry consolidation will soon level off, and cable operators will start "swapping" customers to firm up their regional bases. Allen's strategy is to first amass large numbers of subscribers all over the country; and then swap customers in regions he wants to focus on most, Eagan said.
In an example of subscriber swapping, Adelphia Communications Corp. (ADLAC) and Comcast Corp. (CMCSK) said Wednesday they have agreed to swap some cable systems. Under the trade, Comcast and its Jones Intercable Inc. unit will receive about 464,000 cable subscribers in regions including suburban Philadelphia and Ft. Myers, Fla., that are now held by Adelphia.
In exchange, Adelphia will get Comcast systems serving about 440,000 subscribers in the Los Angeles area as well as in Palm Beach, Fla. 
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