Cablevision goes country with $1.365B buy of Bresnan
Cablevision has emerged as the winner for Bresnan Communications with this morning’s announcement that the nation’s fifth-largest cable operator will buy Bresnan for $1.365 billion.
Last week, the list of bidders for Bresnan reportedly included Suddenlink Communications, Charter Communications and John Malone-controlled Ascent Media. According to The Associated Press, Time Warner Cable also threw in a bid but didn’t make it past the first round.
In a conference call this morning, Cablevision President and CEO Jim Dolan said the purchase of Bresnan – the deal, pending regulatory approval, is expected to close either late this year or early next year – was “the right opportunity for Cablevision.” Dolan also said that while the Bresnan acquisition had some unique opportunities for Cablevision, the company isn’t in the market for every cable operator that comes up for sale.
Once the deal is completed, Bresnan will operate as a newly formed subsidiary under Cablevision with standalone financing. The subsidiary is expected to be financed using non-recourse debt of approximately $1 billion and an equity investment by Cablevision of less than $400 million.
Cablevision chief operating officer Tom Rutledge will oversee the Bresnan subsidiary.
“It’s surprising that Cablevision purchased systems so far from their home footprint, since they have always emphasized the point that their relatively contiguous footprint gave them an advantage when it came to system efficiency, ease of network upgrades, etc.,” said In-Stat principal analyst Mike Paxton. “However, it sounds as if they considered Bresnan a good investment, particularly since it operates in areas without a great deal of competition.
“They certainly paid a premium for it. Based on my back-of-the-envelope calculations, they paid over $4,400 per sub, which is pretty high as cable acquisitions go.”
Bresnan was formed in 2003 by cable pioneer Bill Bresnan, who passed away last year. Bresnan, the nation’s 13th-largest cable operator, serves more than 320,000 basic subscribers in largely rural areas in Montana, Colorado, Wyoming and Utah.
When Bresnan was formed, Bill Bresnan purchased former AT&T Broadband systems, many of which were previously owned by TCI, from Comcast. Comcast still retains a minority stake in Bresnan, but neither Cablevision nor Comcast responded to inquiries about the status of that stake.
After buying the former AT&T assets, Bill Bresnan and his management team, many of whom worked with him before he sold off a previous iteration of Bresnan Commutations to Charter Communications, set about rebuilding the AT&T systems by installing fiber, along with other upgrades.
The end result was a cable operation that while spread out over vast distances across Montana, Colorado, Wyoming and Utah, proved too attractive for Cablevision to pass up.
According to a recent CED article, Bresnan’s to-do list this year  included completing its 10 Gigabit core ring, with MPLS, in April, as well as the rollout of DOCSIS 3.0 to 70 percent of its subscribers by year’s end.
“These properties have been managed very well for the past seven years. We like the culture that exists,” Rutledge said. “In fact, it’s complementary to the Cablevision way of doing things. We don’t have a lot of fixing to do. The plant is sound, the customer service is solid and the technological platform is robust.”
Rutledge said that 90 percent of Bresnan’s plant was upgraded to at least 750 MHz and that its 72 homes passed per mile wasn’t that far off from the national average.
Cablevision sees upside in Bresnan
Rutledge said that one way of looking at the potential upside of the Bresnan purchase was that Cablevision generates a cash flow of $450 annually per home passed, while Bresnan was roughly $250.
“The $200-per-home-passed gap presents us with a significant opportunity,” he said on the conference call. “We have similar rates to Bresnan at Cablevision, so the opportunity is not in rate increases, but in growing the amount of services to all of the potential customers in these communities, as well as adding new services to existing subscribers.”
Cablevision expects to see certain cost efficiencies with its ownership of Bresnan, which will include tax attributes to offset some of Cablevision’s tax assets. In the short term, Rutledge said Cablevision intended to “quickly introduce more HD” programming to Bresnan’s customer base.
Both Dolan and Rutledge characterized the Bresnan deal as a way to further leverage Cablevision’s existing cable operations management team. Rutledge said that despite increased competition from telcos, most notably Verizon, and satellite providers, Cablevision has increased its market share in all of its services and categories, and he expects similar results for Bresnan.
Cablevision also announced that its board of directors has authorized the repurchase of up to $500 million shares of the company's common stock. Dolan said shares were currently undervalued and that the repurchase plan was designed to take advantage of that belief.
“This new stock buyback program is a reflection of our confidence in both Cablevision’s operating performance and potential to generate free cash flow,” Dolan said. “This joins our regular quarterly dividend as an excellent way to increase shareholder value. In addition, we believe that the repurchase program will help to better align the market value of the company’s common stock with Cablevision’s underlying operating performance.”
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