TWC Bids for Optimum West - Analyst Blog
26 December 2012 - 11:30PM
Zacks
Time Warner Cable
Inc. (TWC), the second largest cable multi service
operator (MSO) in the U.S., has made a bid to acquire
Cablevision Systems Corp.’s (CVC) business unit –
Optimum West. The acquisition will make Time Warner Cable a key
player in four distinct US markets.
If the cable MSO succeeds in buying Optimum West then it could add
up to 300,000 cable customers in Montana, Wyoming Colorado and
Utah. However, none of the companies have disclosed the financial
details of the deal, which is expected to be reached either in
January or February 2013.
In 2010, Cablevision Systems had purchased a controlling stake in
smaller cable rival Bresnan Systems from Providence Equity Partners
for a total consideration of $1.37 billion and renamed it as
Optimum West. However, since November 2012, the company has been
trying to sell the cable assets, attracting the interest of several
bidders in due course.
According to Bloomberg, other than Time Warner Cable, currently
there are two more potential bidders for the cable firm, which
include Charter Communications Inc. (CHTR) and
Suddenlink Communications. The deal, if completed, will be the
second acquisition by Time Warner Cable in quick succession after
it acquired Insight Communications for $3 billion, eventually
adding 760,000 cable customers in Indiana, Kentucky and Ohio.
At the end of the third quarter of 2012, the company’s Residential
Video subscribers’ base was 12.159 million. Time Warner Cable lost
nearly 140,000 residential video subscribers in the previous
quarter amidst stiff competition from telecom service providers
like Verizon Communication Inc. (VZ) and
AT&T Inc. (T), which are capturing market
share from cable MSOs by offering fiber-based TV to its
subscribers. Furthermore, they are also facing challenges from the
non-cable operators, which provide live video streaming services
over the Internet.
We believe bidding for the cable firm is a strategic move by the
company to revamp its falling pay TV business. Apart from enhancing
the company’s impressive customer base, the acquisition of Optimum
West business could also boost its top line. On the flip side,
continuous acquisitions could increase the company’s leverage,
which in turn could hurt its margin.
We retain our long-term Neutral recommendation on Time Warner Cable
Inc. Also, it has a Zacks #3 Rank, implying a short-term Hold
rating.
CHARTER COMM-A (CHTR): Free Stock Analysis Report
CABLEVISION SYS (CVC): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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