Allen's Charter Wins Allegiance
August 9, 1999
Charter Communications owner Paul Allen's foray into the telecommunications industry last week sparked little movement in the outstanding bonds of Allegiance Telecom, the competitive local exchange carrier he bought.
Despite a tough week in the secondary market that saw telecom names being sold to keep up with mutual fund redemptions, Allegiance's debt was insulated from the carnage, as bond investors digested the announcement as a positive sign that the vision of cable lines providing multiple services is one step closer to reality.
"The bulk of the big cable mergers are behind us," said Dick Cryan, portfolio manager at Evergreen Investments. "But what you haven't seen yet is the merger of cable and Internet companies."
Cryan said the public still thinks of cable as being a conduit for just television, but it also makes broadband local loops - basically cable modems - much more attractive.
The purchase marked an important move for Allen, co-founder of Microsoft and one the wealthiest people in the world, analysts said, as it put the cable guru in the commercial sector, where CLECs typically compete. Until this, Allen was strictly in the residential sector with his cable holdings; now the business sector - at least in Allegiance's territory - is open for harvesting.
Dallas-based Allegiance operates in 16 cities and reportedly plans to add eight other cities by next year.
The cash infusion will give Allen up to 10% of Allegiance for $355 million. The initial investment was worth $75 million, or $50 a share for 1.5 million shares. He also has options on another five million shares, at $55 each.
Allen has been on a tear in the last year, snapping up cable properties and floating junk bonds to finance the purchases. His main company, St. Louis-based Charter, issued a $3 billion offering earlier this year and announced two weeks ago its anticipated initial public offering, worth $3.45 billion.