Time Warner Cable had been considered a logical buyer: It has systems near Insight’s, the No. 9 operator with 750,000 subscribers in Kentucky, Indiana, and Ohio. But the price was a sticking point. Based on Cablevision’s agreement last year to pay $1.37B for Bresnan Communications, Insight put itself up for auction in March hoping for as much as $4B. The company had taken on a lot of debt when The Carlyle Group took it private in 2005. But Insight has been struggling lately. It lost 4.4% of its cable TV customers in the year that ended in June. Several analysts who follow TWC say they like the terms: Credit Suisse’s Stefan Anninger calls the price, which includes debt, “not cheap, but not terribly expensive either.” And Wells Fargo Securities’ Marci Ryvicker says that “Insight is one way for TWC to improve operations and show growth, which has lagged its peers.” Here’s the release announcing the deal:

NEW YORK, NY, August 15, 2011 — Time Warner Cable Inc. (NYSE: TWC) and Insight Communications Company, Inc. today announced they have entered into a definitive merger agreement under which Time Warner Cable will acquire Insight for $3 billion in cash. Insight serves more than 750,000 customers in Indiana, Kentucky and Ohio.

“We believe in our business and its long-term prospects and have long thought that Insight’s well-run, technologically advanced systems would fit well with our Midwest operations. With the deal announced today, we are able to acquire those systems at an attractive price that is consistent with both our disciplined approach to M&A and our capital allocation strategy,” said Glenn Britt, Chairman and CEO of Time Warner Cable. “We look forward to serving these customers, welcoming Insight employees to the Time Warner Cable team and building on Insight’s successes.”

“For more than 25 years, Insight has provided our customers with unparalleled service and an unwavering commitment to excellence,” said Michael Willner, co-founder, Vice Chairman and CEO of Insight Communications. “We are extremely proud of the investment we’ve made to transform our cable systems into one of the leading telecommunications platforms in the nation. Given their industry-leading position and depth of resources, we expect that Time Warner Cable will continue building on the advancements our tremendous employees have made while providing outstanding service to our customers. The communities we serve could not be in better hands than with Time Warner Cable which already operates in this region and is widely regarded as one of the most respected technology companies in the world.”

“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. “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, serving approximately 537,000 high-speed data subscribers, 679,000 video subscribers and 297,000 voice subscribers, has invested in substantial infrastructure improvements. These system improvements include digital conversions and DOCSIS 3.0 deployment.

Time Warner Cable believes that, after incurring onetime costs and capital expenditures, it will create annual cost efficiencies of approximately $100 million through programming expense savings and other cost reductions. The company expects to realize the bulk of the savings within two years of closing. Furthermore, with Insight’s digital conversion and DOCSIS 3.0 rollout behind it, Time Warner Cable expects Insight will have lower capital requirements of 10%-12% of revenues upon completion of the acquisition.

Insight is currently owned by The Carlyle Group, Crestview Partners, MidOcean Partners, members of Insight management and others. Carlyle and Insight management took the company private in December 2005, and Crestview and MidOcean purchased a significant stake in the company in April 2010.
This transaction is subject to expiration or early termination of the Hart-Scott-Rodino antitrust waiting period, receipt of FCC and franchise approvals, and other customary closing conditions. Time Warner Cable and Insight will work together to provide a smooth transition for both customers and employees.
BofA Merrill Lynch and UBS Investment Bank acted as financial advisors and Dow Lohnes PLLC acted as legal advisor to Insight on this transaction. Citigroup Global Markets Inc. acted as exclusive financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Edwards Angell Palmer and Dodge LLP acted as legal advisors to Time Warner Cable on this transaction.