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Cablevision Makes Case for $1.37 Billion Bresnan Buy

Cablevision agrees to buy Bresnan for $1.37 billion
The Cablevision Systems Corp. headquarters stand in Bethpage, New York. Photographer: Rick Maiman/Bloomberg

Cablevision Systems Corp., the New York area cable-television provider, agreed to buy Bresnan Communications Co. from Providence Equity Partners Inc. for $1.37 billion to expand in the western U.S.

Cablevision rose 5 percent in New York trading, reversing earlier declines, after making its case for the deal to investors. Executives, on a conference call, pledged to increase Bresnan’s customer base and make it more profitable, and signaled they’re not actively pursuing other cable acquisitions.

The purchase lets Cablevision expand in Colorado, Montana, Wyoming and Utah, which are attractive because they have lower pay-TV penetration rates than its home market and no competition from Verizon Communications Inc.’s fiber-optic TV service. Cablevision, the fifth-largest U.S. cable operator, said the purchase will add to its free cash flow in 2011.

“Although the deal may be pricey on the surface, Cablevision is putting in place a plan for long-term growth,” said David Joyce, an analyst at Miller Tabak & Co. in New York. “In its home markets, Cablevision has reached 90 percent penetration rates, so they need to expand elsewhere.”

Cablevision rose $1.17 to $24.57 at 4:02 p.m. in New York Stock Exchange composite trading, after hitting $25.61 for the biggest intraday gain since July 30. The stock has gained 15 percent this year.

Cablevision, based in Bethpage, New York, also announced a $500 million share buyback program.

Attractive Market

Bresnan has more than 300,000 cable and broadband customers. The deal will give Cablevision a bigger slice of the burgeoning market for high-speed Internet services, where revenue will rise to $210 billion globally in 2014 from $164 billion in 2009, according to ABI Research in Oyster Bay, New York. Cablevision Chief Operating Officer Tom Rutledge will oversee the Bresnan properties.

“This acquisition is relatively low risk given Cablevision’s experience in the industry,” said Chris Marangi, an analyst with Gabelli & Co. in Rye, New York. “Bresnan has a relatively small group of subscribers, is well-clustered with advanced systems, and will be relatively easy to manage for Rutledge and his team.”

Cablevision will buy Bresnan through a newly-formed subsidiary with standalone financing. The subsidiary will be given no more than $400 million by Cablevision and will issue about $1 billion in debt to fund the transaction.

The way the deal is structured means that Cablevision will still be able to give some of the cash flow from its New York systems back to shareholders, Marangi said.

Premium Price

Cablevision estimates it paid a little more than 8 times Bresnan’s annual cash flow to acquire the company, excluding any potential synergies, said Gregg Seibert, Cablevision’s executive vice president, on the company’s conference call today.

The purchase price, which is higher than current multiples in the cable industry, turned off some investors, sending the stock down in early trading. Comcast Corp. trades for about 5.6 times 2009 earnings before interest, taxes, depreciation and amortization, while Time Warner Cable Inc. trades at 5.8 times, and Cablevision trades for 6.3 times, estimates Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.

Bresnan generates an annualized cash flow of about $250 per home, compared with Cablevision’s $450, Rutledge said. Closing that gap through new services and the expansion of a phone, Web and cable bundle is a “significant opportunity,” he said. Cablevision said it will also reap some tax benefits from the purchase that will ultimately add to its free cash flow.

“We don’t have a lot of fixing to do,” Rutledge said. “The plant is sound, the customer service is solid, and the technological platform is robust.”

Competing Bids

Cablevision Chief Executive Officer Jim Dolan said the takeover doesn’t mean the company plans more cable purchases.

“The Bresnan transaction has some unique aspects that should not be taken as a signal that we are in the market for every cable company that may eventually be for sale,” he said.

Dolan, whose family controls Cablevision, spun off the company’s Madison Square Garden unit this year to concentrate on the more profitable cable assets.

To buy Purchase, New York-based Bresnan, Cablevision competed against TPG Capital, BC Partners Ltd., Suddenlink Communications and Ascent Media Corp., said a person close to the negotiations who declined to be identified because the details aren’t public. John Malone, chairman of Liberty Media LLC, owns 30.3 percent of the voting shares of Ascent Media.

TPG spokesman Owen Blicksilver and BC Partners spokeswoman Martha Kelly both declined to comment.

Providence hired Credit Suisse Group AG and UBS AG to sell the company. Cablevision hired Citigroup Inc. as its lead financial advisor, along with Bank of America Merrill Lynch and Guggenheim Securities LLC. Comcast Corp. agreed to sell its 30 percent stake in Bresnan as part of the deal, said D’Arcy Rudnay, a spokeswoman for Comcast.

(Cablevision held a conference call earlier today. To listen, dial +1-888-694-4641 with passcode 81994062)

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