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Cablevision Goes Country With Bresnan Buy

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
6/14/2010
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Cablevision Systems Corp. (NYSE: CVC) outbid an array of companies to land Bresnan Communications LLC , a cable operator serving about 300,000 basic video subs and passing roughly 630,000 homes in rural parts of Wyoming, Colorado, Utah, and Montana, for $1.36 billion.

With Bresnan, Cablevision will take over a batch of upgraded systems in the Midwest that primarily compete with telco incumbent Qwest Communications International Inc. (NYSE: Q) (which is being bought by CenturyLink Inc. (NYSE: CTL)). This move expands Cablevision's operations beyond New York, New Jersey, and Connecticut, where it usually crosses swords with Verizon Communications Inc. (NYSE: VZ)

Bresnan has been upgrading its cable modem termination systems (CMTSs) to support Docsis 3.0, but has yet to introduce a Docsis 3-based service. Cablevision, by comparison, has already launched D3 in its current systems. Bresnan's also displayed some 700MHz mobile ambitions after putting up $3.8 million to obtain Block A licenses in Billings and Great Falls, Mont., and a Block B license for the state back in March 2008. (See Bresnan's 'Insurance Policy' , Arris Nudges Cisco for Northwest Cable Upgrades, Cablevision Launches 'Ultra' Docsis 3.0 Service , and The Great Cable Spectrum Speculation.)

Cablevision outbid several other MSOs that wanted to get their hands on Bresnan, an operator founded by Bill Bresnan, a cable industry pioneer who died last November of cancer. Other bidders reportedly included Charter Communications Inc. , Time Warner Cable Inc. (NYSE: TWC), Ascent Media Group LLC , Suddenlink Communications , and TPG Capital, a private investment firm. (See Cable Pioneer William Bresnan Dies at 75 .)

Paying a premium
Cablevision said it plans to buy Bresnan via a newly formed, unrestricted subsidiary of the MSO using standalone financing. Cablevision expects the subsidiary to be financed using non-recourse debt of about $1 billion and an equity investment by Cablevision of less than $400 million. Cablevision intends to close the deal in late 2010 or early 2011.

Sanford C. Bernstein & Co. Inc. analyst Craig Moffett said in a note issued this morning that the price Cablevision is paying is roughly 8.3 times his estimate of Bresnan's 2009 EBITDA (about $165 million), and highlights the big difference in the way the private and public market is currently valuing the cable industry.

"This [deal] represents a steep premium to current market multiples of 2009 EBITDA of 5.6x for Comcast, 5.8x for Time Warner Cable, and 6.3x for Cablevision," Moffett noted, adding that the deal works out to about $4,250 per subscriber.

Still, the deal isn't a huge one for Cablevision, with the newly acquired Bresnan subs accounting for roughly 9.5 percent of Cablevision's total sub base.

However, given that Bresnan's systems are already considered upgraded and well-run, questions are rife today about what long-term positives Cablevision will be able to produce from this particular purchase.

"Opportunities to squeeze out synergies are likely to be somewhat limited," Moffett noted. "This deal is not a turnaround story. It is a financial story."

Still, Cablevision hopes the buy will be a boon to shareholders. "We believe the acquisition of Bresnan is an excellent opportunity to leverage Cablevision's strong management team and build shareholder value," company president and CEO James Dolan said, in a statement.

Cablevision has tapped its COO, Tom Rutledge, to oversee the Bresnan properties.

Company officials are scheduled to discuss the deal in more detail later this morning.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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