Comcast, Cox lead biz's new acquisitive mood
Comcast Corp., the nation’s No. 4 cabler, is contemplating going back on the acquisition trail to increase its 4.2 million subscriber base, Comcast execs told a recent Wall Street briefing, signaling that big cable acquisitions may be coming back after a long respite.
At the same time, Cox Communications, the No. 5 cabler, is keeping its eye out for potential deals. Both Comcast and Cox are seen as likely buyers for Marcus Cable Inc., which recently put itself on the market.
Waves of consolidation in the early and mid-1990s put 70% of cable subscribers into the top 10 systems, although the bulk of those are concentrated in systems owned by Tele-Communications Inc. and Time Warner.
“The industry is still more fractionalized than (industry leaders) want it to be and consolidation allows them to address that issue,” said Bear Stearns analyst Ray Katz.
A growing number of analysts say the improving financial health of the cable industry, reflected in the spectacular rallies enjoyed by most cable stocks over the past year, could prompt a new wave of deals in coming months.
“You will start to see acquisitions using stock, which you haven’t seen too much lately,” said Lehman Bros. analyst Larry Petrella. “People have been shedding assets and cleaning up their balance sheet. Now I think we are getting to the point where people are getting confident,” he added.
Bear Stearns’ Katz agrees that acquisitions may be on cablers’ minds, but cautions, “I don’t think anybody wants to wave a red flag” at the antitrust regulators in Washington, D.C.
“Everybody in the industry is probably looking at every acquisition opportunity,” said Comcast treasurer John Alchin. He said Comcast told analysts earlier this month “not to be surprised if we were to make an acquisition,” although he emphasized that Comcast would be “fiercely protective of our investment grade (credit) rating.”
Alchin noted that Comcast, like several other cablers, is nearing the end of a long and expensive system rebuilding program, which means that an increasing amount of cash will be available for other purposes in years to come.
While Comcast “doesn’t have to make any acquisitions” and could prosper comfortably with its 4.2 million subscribers, “I don’t think we can afford to be much smaller than we are … More is better,” Alchin added.
Bankers say Cox is also looking to grow, a view confirmed by the company. A spokesman for Cox said the cabler, which has 3.2 million subscribers, is “not complacent at the size we are now. We are constantly looking for ways to grow our customer base.”
Asked whether Cox would be a buyer of individual systems or of entire companies, the spokesman said, “We look at everything.”
A spokeswoman for Tele-Communications Inc. said the cabler, which has been selling off systems to other cablers in exchange for stock, “is always looking at the possibility of strengthening some of the local markets in which we have a significant presence,” but she emphasized that price is a big factor.
One target already in the sights of Comcast, Cox and TCI is No. 9 cabler Marcus, which is on the market at a price thought to be between $2.5 billion and $3 billion. Marcus’ systems are clustered in six areas, including Dallas/Fort Worth, L.A., Wisconsin and Alabama — each of which would fit well with other cablers. None of the cablers would comment specifically about their interest in Marcus.
Wall Streeters are also beginning to focus on No. 3 cabler US West Media Group, otherwise known as MediaOne, as a possible takeover target. The company is awaiting IRS approval allowing it to separate from the telco side of US West, and once that and several asset sales are finalized in coming months, the company’s debt will be down to $5.9 billion. Its market worth is about $22 billion, making it a big acquisition only a couple of companies could attempt.
But in a report last week, influential cable analyst Dennis Leibowitz of Donaldson Lufkin Jenrette said the cabler “could become an attractive takeout candidate.”
The only problem is that Time Warner is the most logical buyer, analysts say. Not only are MediaOne’s systems a good fit with TW but MediaOne owns 24.5% of Time Warner Entertainment, a partnership that owns in turn Warner Bros., HBO and a big chunk of Time Warner cable. That means Time Warner could resume full ownership of those assets and simplify its balance sheet with such a deal.
But Time Warner insists it’s not a buyer. A spokesman reiterated Time Warner chairman Gerald Levin’s comments of recent months that TW is “strategically complete,” and said Time Warner is working to “bolster” its partnership with US West.
Most analysts say, however, that such a deal would be a great fit for TW and that Levin’s statements can’t be expected to apply permanently.
Other buyers could face obstacles buying US West because of the TWE partnership agreement, which Leibowitz noted in his report last week contains “onerous change-of-control provisions.” He said Time Warner would likely need to give consent to any buyer.
“We believe an ultimate sale of the company is possible,” Leibowitz concluded. US West declined comment.