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TCI deal may spur copycat ventures

Cable stocks soar on rumors of buyout

AT&T’s dramatic move to buy Tele-Communications Inc. could open the floodgates for a rash of other cable takeovers and joint ventures, said media industry analysts.

Investors supported this notion Tuesday when rumors about AT&T’s negotiations to buy Tele-Communications Inc. drove just about all cable stock prices sharply higher.

Shares of Cablevision Systems — which because of a recent joint venture with TCI would become nearly half-owned by AT&T after it buys TCI — catapulted $7.25, or more than 13%, to close at $62 Tuesday. Comcast jumped $2.78, or more than 7%, to close at $41.69.

In addition, shares of Time Warner rose more than 4% to close at $83.25 Tuesday; Cox Communications’ stock rose 4% to finish at $46.25; MediaOne increased more than 5% to close at $41.25; TCA Cable increased almost 6% to close at $60.75 and Century Communications grew more than 4% to close at $16.

Three-pronged attack

In buying TCI, AT&T is seeking to achieve the hat trick of selling customers telephone, television and high-speed Internet services in one package from one retailer.

“What’s clear is that cable is the gatekeeper to consumers, and that other companies are going to have to pay for that access,” said Merrill Lynch entertainment analyst Jessica Reif Cohen.

If the deal successfully closes, other long-distance phone companies and Baby Bells will look to purchase or team up with one or more cable operators to keep pace with AT&T.

“AT&T has a last-mile challenge,” said Larry Gerbrandt, senior analyst for Paul Kagan Associates. “TCI has the connection to the home that AT&T needed.”

Gerbrandt and other analysts believe that the telcos will come knocking on the cable company’s doors with offers they they’ll have trouble turning down.

“At the right price, everybody has to look to sell out,” said Gerbrandt. “Everybody will listen at this kind of valuation.”

In addition to other phone outfits looking to make deals, AT&T might not stop at buying TCI. The long-distance giant could seek to buy other multisystem operators to add to TCI’s 14 million subscribers.

Some doubters

Not all analysts said that the move will spur a flurry of copycat deals. Although Reif Cohen called it “a transforming deal,” she said it was hard to say whether it would precipitate other takeovers.

If AT&T’s move does inspire the other telcos to bid for cable operators, which MSOs are the most likely to sell?

Gerbrandt said that all the top cable operators are now ripe for takeovers or joint ventures.

The family-controlled cable operators, such as Cablevision Systems Corp. (the Dolan family) and Comcast Corp. (the Roberts family), would seem the least likely to bail out of the businesses they’ve spend decades building. However, these two stocks jumped the most on the deal speculation, indicating that the Street viewers them as takeover targets.

Gerbrandt said he had the hardest time believing that of all the major cable operators, media conglomerate Time Warner, which is now serves the most subscribers of any cable operator, would part with its MSO. But if the offering price was high enough, he said, Time Warner would sell also.

(Richard Morgan contributed to this report.)

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