Time Warner to buy Insight Communications for $3B

The all-cash deal is expected to boost Time Warner Cable's Midwest operations

Time Warner Cable is making a big bet on a Midwestern cable operator.  The company announced Monday that it has agreed to acquire Insight Communications, a cable operator serving the states of Ohio, Kentucky, and Indiana, for $3 billion in cash.

Insight Communications is the ninth largest cable operator in the U.S., currently serving some 750,000 customers.  Time Warner is buying the company from The Carlyle Group, Crestview Partners, MidOcean Partners, members of Insight management, and others.  The Carlyle Group and the Insight team took Insight private in 2005, after which, Crestview and MidOcean stepped in and purchased a large stake in the company in 2010.

Time Warner believes that the deal will be a good fit for the company’s Midwest operations, and that the acquisition will generate a cost savings of some $100 million through “programming expense savings and other cost reductions” over the next two years… Of course, that savings will come after Time Warner shelled out $3 billion in cash for Insight.  But as an added perk, Time Warner anticipates lower capital requirements of 10% to 12% for Insight now that Insight has its digital conversion and its DOCSIS 3.0 rollout out of the way.

Of Insight’s nearly 800,000 customers, 537,000 are high-speed data subscribers, 679,000 are video subscribers, and 297,000 are voice subscribers.

“Taking into account Insight’s recent performance, $300 million in NOL value, the anticipated net cost synergies and lower capital intensity, this acquisition presents an attractive opportunity to enhance TWC shareholder value. With these benefits, the purchase price multiple is favorable to current TWC and peer average trading multiples,” said Irene Esteves, CFO of Time Warner Cable, in a statement. “We will continue to return excess capital to shareholders consistent with our target leverage ratio of 3.25x, including the impact of this acquisition on our existing and expected leverage.”

Insight generated $270.5 million in revenue in the second quarter of 2011, marking a 2% increase over last year.