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Providence Equity Continues To Surf Cable TV Sector –

Rhode Island-based Providence Equity Partners recently completed two deals in the North American cable television sector, including an investment in a Canadian TV station and the buyout of a cable subscriber base in the Rocky Mountain region.

Providence invested $110 million in equity in Craig Media Inc., a privately held Canadian broadcasting company headquartered in Calgary, Alberta. Craig Media also received a $35 million senior debt facility from RBC Capital Markets and BMO Nesbitt Burns, giving Craig a total of $145 million of investments from outside firms.

According to Andy Pernal, Craig’s chief financial officer, the infused capital is earmarked to be used in four specific ways, which began with the buyout of TD Capital, holders of a 33% stake in Craig Media prior to the Providence investment.

The equity investment was also used to repay a senior term loan, but Pernal declined to comment on specifics. And while some of the remaining capital will be stowed away as working capital and used for future acquisitions, an undisclosed amount is being used to launch the first full-scale addition to the Toronto broadcasting system in more than 30 years.

“The CRTC (Canadian Radio Television Communications Commission) is the governing body behind all licensing and regulations, and the license they granted us puts us on par with Global and CTV – the big Canadian broadcasting companies – and this gives us a nationwide presence,” said Pernal. Toronto is the sixth-largest broadcasting market in North America.

With the launch of the new Toronto station, called toronto/one, in the fall of 2003, Craig Media will have cable and broadcast stations in five markets across Canada, including the Alberta-based cities of Calgary and Edmonton, and Manitoba’s Winnipeg and Brandon. The growing cable company also manages three national digital specialty networks, including MTV Canada, MTV2 and TV Land, with a fourth Stampede set to launch later this year.

Providence has invested in five Canadian companies during the past seven years, with the most notable being its equity investment in the founding of MetroNet, a competitive local exchange carrier that was later sold to AT&T and renamed AT&T Canada.

While the deal north of the border was in the works, Providence was also pulling the strings behind Bresnan Broadband Holdings LLC, in its $525 million takeover of a 314,000-subscriber base of cable TV customers in the Rocky Mountain region, including systems in Colorado, Montana and Wyoming.

“After we sold to Comcast (a $3.1 billion deal in 2000 involving cable systems in Michigan, Minnesota and Wisconsin), we searched [for the right acquisition] for two years,” said Margot Bright, Bresnan’s vice president of finance. “We see a tremendous upside in this deal, mainly because this system managed to hold its own even though it lagged far behind in technological upgrades. Bresnan can provide the focus needed.” Though Bright said the final tally is not in yet, projected revenue for 2002 was approximately $181 million.

Providence used its fourth fund, Providence IV, to finance the buyout. While a source close to the deal acknowledged Providence was the largest investor, the source would not divulge exactly how large a stake Providence now controls. An additional source did say Bresnan management contributed $20 million in the deal, and additional investors include Quadrangle LLC, and TD Capital.

“Providence has done 10 deals with [Bresnan Broadband founder] Bill Bresnan over the years and there’s a real comfort level between [the firm] and Bresnan,” said the source.

The deal was actually conceived in April 2002, while the Rocky Mountain system was still under the ownership of AT&T Broadband. The deal plodded along unnoticed, while AT&T and Comcast began talks of a spinout of its broadband unit. Comcast and AT&T Broadband eventually agreed to a merger last November, creating, at a value of $60 billion, the largest cable company in the U.S.

“This [sale to Bresnan] is really just the completion of what AT&T started,” said a source close to the deal. “And besides, this cable system is more rural that the typical Comcast system, and Bresnan has plenty of expertise and has seen success running rural cable systems.” Comcast currently holds a spot in 17 of the top 20 markets, with 21 million subscribers in the U.S., according to the source.

Providence has had its hands in the communications sector since its founding in 1991, and the firm’s most recent acquisitions have been in Europe. In a January club deal that included The Carlyle Group and GMT Communications, Providence received a 46% stake in the _665 million ($700.6 million) acquisition of France Telecom’s Casema unit, the third-largest cable television operator in the Netherlands, with 1.3 million subscribers (see Buyouts, 2/4/2003).

In March, Providence finalized the acquisition of Kabel Deutchland, Europe’s largest cable company, joining up with Apax and Goldman Sachs Capital Partners to shell out _1.73 billion ($1.86 billion) for 10.2 million subscribers. For sports fans in the Northeast U.S. (many of them New York Yankee fans), Providence’s most notable investment was an undisclosed amount in the founding of the Yankee Entertainment and Sports (YES) Network in March 2002.