In one of the year’s first mega-deals, The Blackstone Group in conjunction with TCI Communications and the management of Bresnan Communications early this month finalized a $1.25 billion buyout of cable television provider Bresnan, giving Blackstone a 40% interest in the company. The firm this month also added two managing directors to bolster its private equity and mergers and acquisitions teams.
TCI, currently in talks to merge with AT&T Corp., bought 50%, and Bresnan, the White Plains, N.Y.-based company founded by William Bresnan, controls the remaining 10% interest.
Bank debt was provided by Chase Manhattan Corp., Toronto Dominion Bank and Bank of Nova Scotia. Subordinated debt was provided by Salomon Smith Barney.
The deal is Blackstone’s third investment in the cable industry and its second co-investment with TCI. Last April, the two groups were limited partners in the formation of InterMedia Capital Partners VI, which acquires cable systems. Blackstone also is an investor with Time Warner and Denver-based Fanch Communications in TW Fanch-one Co., another cable conglomerate.
Targeting the Smaller Markets
The Bresnan deal delivers 660,000 cable customers to Blackstone, most of them living in medium-size and small cities in Michigan, Minnesota, Nebraska and Wisconsin, where the firm sees a strong market, according to Mark Gallogly, a senior managing director at Blackstone.
Blackstone is bullish on the cable industry because the firm believes it will expand to include delivery of Internet and telephony services in addition to television, Mr. Gallogly said.
The Bresnan investment fits the model of what Blackstone considers an ideal investment, in which partnerships are forged between itself, a strategic buyer and an entrepreneur, Mr. Gallogly added.
Blackstone will continue to operate its three cable investments as separate entities.
Mr. Gallogly declined to comment on what multiple of EBITDA cable companies are currently being valued at and declined to say what plans Blackstone had for an exit from its investments.
According to Stephen Schwarzman, president and chief executive officer of Blackstone, the firm’s current fund, the $3.8 billion Blackstone Capital Partners III Merchant Banking Fund L.P., has invested about $700 million of its capital to date.
Blackstone Adds to Its Team
Blackstone also recently capped off a year-long personnel search, hiring Richard Lappin as senior managing director in the firm’s principal investing group.
Mr. Lappin’s position as an operating principal, effective early this month, represents a new function within the New York firm, Mr. Schwarzman said.
“We were looking for someone with a lot of operating background, but who was also familiar with private equity processes,” he said.
Most recently president and chief operating officer of Fruit of the Loom Inc., Mr. Lappin has also been president of Farley Industries and chief executive of Doehler-Jarvis and Southern Fastening Systems, among other management positions. He said he identified the private equity market as an area he would like to become involved in and had been contacted by a number of firms.
“Blackstone is the one I elected to talk to, based on reputation and the recommendation of friends,” Mr. Lappin said.
At Blackstone, Mr. Lappin will participate in the evaluation and optimization of current portfolio companies as well as offer due diligence services, from an operating perspective, on prospective investments.
Banking on Growing Advisory Group
In addition to Mr. Lappin, Blackstone this month also announced that Robert Friedman will join the firm as senior managing director.
Formerly with the New York law firm Simpson, Thacher & Bartlett, Mr. Friedman’s position at Blackstone becomes effective March 1. At Simpson Thacher, Mr. Friedman was a senior member of the mergers and acquisitions practice where he worked on more than 200 leveraged buyouts.
At Blackstone, Mr. Friedman will focus on buyouts and also will work on growing the firm’s merger advisory business.