Paul Allen - who co-founded Microsoft with Bill Gates - is getting ready to make an initial public offering of his red-hot cable systems, sources told The Post.

Allen will likely take Charter Communications public in the fall, though Charter spokeswoman Anita Lamont said no such decision has been made.

He'd raise some $2 billion if he sold 20 percent, creating a public company worth $10.3 billion to $10.9 billion.

Allen is also looking to raise some $3 billion in a junk-bond offering.

Not that Allen needs the money.

His Microsoft stock alone is now worth about $22.5 billion, and he has investments in some 40 other businesses, including entertainment, new media, and sports properties.

But Allen has a vision for the future that's going to be expensive and require stock. He, along with his pal Gates, considers cable the fastest way to carry interactive services - like the Internet, electronic commerce, video on demand, and phone service - to the home.

Allen has been on a buying binge, creating the seventh-largest cable company, with 2.4 million subscribers, spending $7.3 billion in the process.

His enthusiasm, along with that of Gates and AT&T's Mike Armstrong, has driven cable stocks through the roof in the last two years.

By going public, Allen can raise a stock fortune - and he'll need it if he wants to compete in the cable acquisition game.

As rich as Allen is, his dollars are competing with the inflated stocks of his cable rivals. And sellers often don't like to take cash, because then they have to pay taxes.

"You're in an environment where cable stocks are trading at historic highs," said SG Cowen cable analyst Gary Farber. "It's good if a company can use the stock as currency to acquire what's left out there."

Just Friday, Allen lost out in bidding for a choice cable system, Century Communications, which went to Adelphia for $5.2 billion in cash and stock.

But some believe Allen might be more interested in Media One, the nation's third-largest cable operator, which has systems closer to Allen's. Acquiring Media One would make Charter the nation's third-largest cable company, after AT&T (once AT&T acquires TCI) and Time Warner.

Allen has already bought 15 million shares of Media One, giving him 2.5 percent of the company.

With an IPO, he'd be in a better position to make a run at Media One, now worth some $35 billion. That's expensive, and there are complications, such as a heavy tax bite if Allen sold off non-core Media One assets. But he might want to do that and keep the assets he most covets, which are now worth some $15 billion.

While Time Warner's Jerry Levin claims the right to veto a Media One sale, he might back an Allen acquisition.

-- Jon Elsen - 3/07/99