Cablevision buying Bresnan and its own stock


Cablevision stunned Wall Street Monday morning with two announcements. First, it is buying back up to a half billion dollars worth of its own stock, which investors like, and second, it is buying Bresnan Communications for $1.37 billion, which has some analysts scratching their heads. Rumors that Cablevision was in the bidding for Bresnan had been poorly received on Wall Street last week.

What is the synergy for Cablevision, whose current MSO footprint is exclusively in the outer boroughs and suburban counties of New York City, buying a cable company whose systems are exclusively in rural areas of Colorado, Montana, Wyoming and Utah? Skeptical Wall Street analysts raised the issue in a conference call with Cablevision executives.

COO Tom Rutledge said Providence Equity Partners and the Bresnan family have done a good job up building up the systems to current industry specs, “so there isn’t a lot of fixing to do.” The “significant opportunity,” he said, is in building revenues. He noted that while Cablevision averages $450 annually in cash flow per home passed, while the figure for Bresnan is $250. Cablevision hopes to shrink that $200 gap by pushing the triple-play strategy is has successfully used in the NYC area to lure customers with deals for TV/phone/broadband offerings that save them money over multiple providers.

Cablevision executives aren’t downplaying the competition. They noted that DirecTV and Dish Network combined have 38% penetration in Bresnan’s markets, vs. 48% for Bresnan.

The leveraged structure of the $1.365 billion acquisition of Bresnan will utilize a new, unrestricted subsidiary of Cablevision with standalone financing. The company is planning to put up less than $400 million in cash and borrow approximately $1 billion. Cablevision Executive Vice President Gregg Seibert insisted that the acquisition will be accretive to free cash flow for Cablevision in 2011.

At the same time, Cablevision announced that it is, for the first time ever, buying back some of its own stock. In fact, it put that news release out a few minutes before the announcement of the Bresnan acquisition early Monday.

“This new stock buyback program is a reflection of our confidence in both Cablevision’s operating performance and potential to generate free cash flow. This joins our regular quarterly dividend as an excellent way to increase shareholder value. In addition, we believe that the repurchase program will help to better align the market value of the company’s common stock with Cablevision’s underlying operating performance,” said President and CEO Jim Dolan in a statement.

RBR-TVBR observation: The dual announcements appeared to have the desired impact for Cablevision management. After the debacle of spending $650 million for Newsday, shareholders really didn’t want to see the Dolan family go off and make another big acquisition that no one else could understand – such as buying a bunch of cable systems on the other end of the country. But the stock buyback announcement gave the shares a boost and gave management time to explain the favorable structure of the financing deal. Now we wait to see how sell the strategies developed in Long Island will play in Big Sky country.