Cablevision is likely trying to sell some of its Rainbow Media programming assets, which include the AMC and IFC movie networks, as part of the proposed privatization by the Dolan family, analysts said. They said an extension Thurs. of bank funding for the Dolan proposal to pay about $5 billion to other shareholders helps prospects for the takeover, which is being considered by a special board committee. Shares of the company had fallen 11% since the Dolan bid was unveiled in June, amid concern the deal might not come to fruition because of weakened cable valuations, among other risks, said analysts including Janco’s Matt Harrigan.
Cable and phone firms reprised familiar themes in reply comments for the annual FCC report on video programming competition. “The legacy cable franchising process” hampers entry, SBC said. NCTA parried: “Telephone company claims about the inadequate state of video competition are inaccurate and their corresponding pleas for special regulatory advantages are unavailing.” In previous comments, a rare point of accord between cable and Bells was that consumers will benefit from competition (CD Sept 21 p8). Cable firms including Cox and Insight said retransmission consent boosts basic tier rates: “Use of retransmission consent to launch, and enhance distribution of, broadcaster-owned channels” has raised costs, they said. The ACA said the imposition of retransmission fees of as much as $1 per subscriber monthly could add $1 billion-plus to basic cable costs. Rural phone firms selling pay TV face a “challenge” in getting “access to necessary video content at reasonable rates and under reasonable terms,” OPASTCO said.
Carl Icahn, again drawing a bead on Time Warner, faces an uphill battle persuading the media giant’s investors to back his plan to help oversee the firm and force it to sell assets, said corporate governance experts and other observers. Icahn, who had success with that strategy at Blockbuster, will have to swing harder at TW because it’s a far larger outfit with many more investors, said observers, but Icahn may get TW directors to take some steps he’s pushing. They include a massive share repurchase and asset sales. Time Warner, responding to Icahn, said it’s committed “to creating shareholder value.”
Media observers were puzzled by an FTC request for information in its review of Adelphia’s proposed takeover. The FTC on Wed. asked for “data” from a 2002 cable price survey, the FCC said Thurs. That survey found average monthly cable rates rose 8.2% the 12 months ended July 2002; Adelphia filed for bankruptcy June 25, 2002. The FTC, which said it would try to protect the confidentiality of information, declined to comment on its information request. “It’s conceivable that the FTC is looking to see whether there’s a correlation between the size of cable operators and the rates they charge,” said Stanford Washington Research Group analyst Paul Gallant, a former aide to 2 FCC commissioners. “But asking for just one year’s data makes it hard to say for sure what they're looking for.” Asked about the FTC request, Precursor CEO Scott Cleland said: “I don’t think it’s exceptionally significant, they're doing their job. They're taking a baseline look; they may ask for more later,” such as data for 2003 and 2004. The FTC may be operating on the assumption that “once they [went] into bankruptcy, Adelphia may be behaving differently,” said Mark Cooper of the Consumer Federation of America.
The FCC likely will review cable ownership attribution rules, and act on them before setting national ownership limits, Commission sources said. Separating the 2 items would help align broadcast TV and cable system rules on the thresholds for media properties to be considered owned by a media firm for antitrust purposes, a source said. There are some “slight” differences in considering attribution of cable systems versus TV stations, a source said.
In the 2nd European cable deal in 3 days, NTL is buying Telewest for about $6 billion, after the U.K. firms struggled with satellite competition and financial restructurings. No. 1 U.K. cable operator NTL, which emerged from bankruptcy in 2003, will be better positioned to compete with BSkyB if it completes the merger with Telewest, analysts said. Shareholders of Telewest, which emerged from what it called a “financial restructuring” last July, would get a mix of cash and stock under the deal, subject to regulatory approval and expected to be completed by March 31.
Liberty Global delivered on a promise to make more acquisitions, agreeing to buy Cablecom for $2.19 billion in cash. Liberty Global executives, including CEO Mike Fries, told investors in N.Y.C. Wed. the firm is pursuing buys in Europe and Japan. The purchase of Cablecom, Switzerland’s largest cable operator, will be financed mostly with debt; it’s expected to be completed by the end of Oct. The firm has 2 million video, voice and broadband customers. Liberty is paying less for Cablecom than that firm hoped to raise in an initial public offering (IPO) valuing it at as much as $2.7 billion. “It’s definitely a good deal; it’s lower than the IPO price they were going for,” said Jefferies & Co. analyst Robert Routh. “It’s a continuation of the strategy to recreate TCI on the European continent -- this is something they had been looking at for a while,” said Routh. TCI was the cable operator Liberty Global Chmn. John Malone ran before it was sold to Comcast. Routh urges buying shares of Liberty Media, and owns stock in that company and Liberty Global. The deal will help Liberty Global cut costs in Europe by giving it more heft to negotiate content deals, he said. However, the purchase price as a multiple of Cablecom’s expected 2006 cash flow is higher than other deals and Liberty Global’s value on that basis, said Stifel, Nicolaus analyst Ted Henderson, who has a “market outperform” rating on Liberty Global. He called Cablecom “one of the most attractive cable operators in Europe.”
Charter, the most indebted cable operator, must sell assets and continue to extend the maturity dates of debt the next 18-24 months to avoid a bankruptcy filing, analysts said. The firm, which Wed. exchanged $6.9 billion in debt, faces many risks unless it takes further action, said observers such as Standard & Poor’s credit analyst Eric Geil: “They'll have to have more transactions… because the cash flow growth is not sufficient to enable them to meet their debt maturities out past 2007.” Geil dropped Charter’s corporate credit rating to “SD” for selective default. Still, he said, “they do have some breathing room for the next couple of years.” The company, with about $20 billion in debt, has the highest debt to cash flow ratio of any publicly traded U.S. cable operator, he said.
Cox may sell bonds or use asset sales to finance system rebuilds to restore operations to more than 165,000 customers in New Orleans who can’t get service, analysts said. The company is committed to a full return to the city flooded by Hurricane Katrina, and can use proceeds from insurance to at least partly fund restarting service to all customers who eventually return to the area, a spokesman said, but analysts believe additional money will be needed. The company declined to provide information on the extent of its insurance. Cox, with an investment- grade credit rating, would see plenty of demand in any bond sale, analysts said. “The market would not have a problem buying Cox debt,” said Jefferies & Co. analyst Robert Routh, who has a “neutral” rating on the cable industry: “Whether or not it’s investment grade or not is another story.”
The FCC is granting more exemptions from local cable rate regulation, after being inundated with requests by operators seeking to escape certain rules. The number of petitions seeking a determination of effective competition has jumped almost eightfold over the previous year, to about 300 in the past 12 months, said an FCC official. In a normal year, the FCC receives about 40 such requests, taking 9 months to a year to act on each. Cable observers said the Commission could act more quickly were administrative burdens for approval eased. They said Congressional plans, which may shift regulation away from cities to the federal govt., could add to delays.