Cablers are cookin’

Cox's $4 bil TCA bid makes waves in stock market

NEW YORK — Cable TV stocks surged to new heights Wednesday in the wake of Cox Communications’ $4 billion offer to buy Texas-based TCA Cable Inc., a low-profile cabler whose shareholders include software billionaire Bill Gates and legendary investor Warren Buffett.

Coming a week after AT&T wrapped up the $60 billion acquisition of MediaOne Group, the TCA bid once again focused investor attention on which cable operators are still available for acquisition.

As a result, independent cablers rocketed: Adelphia Communications jumped 9% to close at $84.62, while Cablevision Systems Corp. rose 6% to close at $89.18.

Not selling?

Neither Adelphia nor Cablevision are showing any signs of wanting to sell, but Wall Streeters noted TCA had insisted very recently it wasn’t looking to sell either.

The TCA bid “changes your focus back towards the next player and makes the market think the takeover bids are never going to end,” said Lehman Bros. analyst Larry Petrella. In recent months, a number of cablers have been acquired, including Century, Jones Intercable and Tele-Communications Inc.

The Cox deal also raises questions about the future growth prospects for Paul Allen’s Charter Communications, which approached TCA earlier this year about a possible acquisition. Charter was rebuffed, apparently because TCA managers wanted a deal in which they would retain operating autonomy.

Charter was also outbid by Adelphia on a series of recent cable acquisitions, stranding the software billionaire at about the 3.5 million subscriber mark, while Adelphia lifted its customer base to almost 5 million. Cox, too, will rise to the 5 million mark as a result of buying TCA’s 883,000 subscribers and the 264,000 acquired in last month’s $1.4 billion Media General acquisition.

Charter could counter

SG Cowen Securities analyst Gary Farber predicted Charter “could counter” Cox on TCA, although TCA shareholders owning 21% of the stock have already agreed to the Cox offer.

Charter is believed to be scrutinizing Cox’s deal with TCA, to see how watertight it is, although observers said the price being paid by Cox may be higher than what Allen would offer anyway.

Cox is offering $63.89 a share in a mix of cash and Cox stock, about $10 above where TCA was trading earlier this week. TCA stock rose $7.93 to close at $60 Wednesday while Cox stock fell $1.50 to $86.50.

The price equates to about $4,115 a subscriber, below the $4,700 a subscriber paid by AT&T for MediaOne but much higher than prevailing prices for small, rural systems like those operated by TCA. “Its a good price,” said Farber.

Buffett, Gates profit

It also guarantees a big profit for Buffett and Gates. Buffett’s Berkshire Hathaway filed a notice with the SEC in February declaring an 8.1% stake in TCA, believed to have been accumulated over the previous year at prices as low as $29 a share — guaranteeing Buffett a profit of as much as $121 million on an investment which may have cost him as little as $117 million.

The size of Gates’ holding is not known because he kept it below the 5% disclosure threshold and it is also not known how much he paid, but he is believed to have bought his TCA stake several months ago. Microsoft declined comment.

TCA’s decision to sell reflects a realization by its management that without a deep-pocketed parent, it would take several years to roll out new products and services like high-speed Internet access and telephony, said TCA chairman Fred Nichols.

“As we looked at the opportunity to combine with Cox, we realized that it provided the ability to take these things to the marketplace so much faster … . That was the major reason that we said yes,” Nichols told reporters on a conference call.

Cox CEO Jim Robbins said the acquisition would be an “ideal platform for further middle-market consolidation.”

Meanwhile, as the acquisitions continue, some smaller cablers are moving closer to going public. As expected, (Daily Variety, May 11), Insight Communications filed a prospectus with the SEC late Wednesday for an initial public offering.