Reported Charter-Cox talks, Cablevision comments raise cable M&A speculation; Comcast's view
Tom Paine
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Talk of cable industry consolidation, spurred by John Malone's stated desire to roll up other operators with Charter Communications (in which his Liberty Media holds a 27% stake) to create a company with near Comcast-like scale, gained momentum today on two fronts.
One is a Bloomberg article that reports that Charter (#4 in subscribers) is in talks with #3 Cox Communications about a possible deal. Also, the Chairman of Cox Communications parent Cox Enterprises recently asked a court to dissolve a trust that controls 49% of the company, a step that may be a necessary precondition to a sale.
Update: An internal Cox Communications memo obtained by the Atlanta Journal-Constitution(which is owned by Cox Enterprises) denied that any talks had taken place.
The other involves comments by #5 Cablevision CEO Jim Dolan, during that company's earnings conference call today, that appeared not to close the door completely on Cablevision being a seller.
I had wondered last month whether Comcast would (or could) take any steps to try to maintain the unique scale it currently has in the industry.
Comcast, which reported solid 2nd quarter results (better than most others in the industry) on Wednesday, with revenue growing 7% and operating cash flow growing 8.4%, had some questions come up during its conference call Q&A about whether it had an interest in buying other cable companies.
My interpretation is that Comcast's answer was not an absolute no. CEO Brian Roberts responded: "I think you can tell by the results we have just posted, we are really focused on executing our business plan and we really think there is a lot of organic growth opportunities in the business. That being said, we always want to look at everything, we want to be educated, we really want to spend time internationally."
The international reference seemed to be more about expanding content (NBCU related) opportunities than in buying cable systems overseas.
When asked if there was an absolute (legal) limit on how big Comcast could get in the US cable business, Roberts said "I don't think there really is. There's been a number of rulemakings that have been knocked down, but obviously that's a gray area."
CFO Michael Angelakis said Comcast did not want to leverage itself financially to extent that Malone said he might, and that Comcast is more comfortable with a leverage ratio of 1.5 to 2 times rather than the 4 times Malone says he might consider, which doesn't seem to leave much room for adding leverage at present. Angelakis said that as of the end of Q2 it was 2.3 times.
Cablevision shares were up 5.2% today and the company has a market value of $5.2 billion, though it also has almost $10 billion of long-term debt.
The transcript of Comcast's earnings conference call was provided by Seeking Alpha.
