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Withdrawal of Cablevision MBO Spotlights Cable Values Says Kagan Research

Posted on: Monday, 7 November 2005, 15:00 CST

The Dolan family's 10/25 withdrawal of its plans to take Cablevision private, combined with a recent drop in cable MSO share prices, has again given center stage to the resiliency of cable values in the face of new and existing competition.

Market noise about telco video franchising and launches, as well as worries about new rivalry for viewers from Internet video, have sent Kagan's Cable MSO Average down 14.4% since 8/15, with Comcast dropping 16% from $31.88 on 8/15 to a $26.65 close on 10/27, at which price it trades at an abysmal 7.2x 2006 c.f.

Many analysts, including Kagan, said the initial terms of the Dolan offer ($33.50/share, including $21/share in cash and a stake in Rainbow Media Holdings valued at $12.50/share) fell short of the value of the company's assets, which include three mil. subs in the areas around New York City -- one of the best-clustered, highest revenue generating operations in the country.

The bid, originally announced June 19, valued each Cablevision sub at $4,377, 9.9x 2005 cash flow and 8.7x 2006 EBITDA. But Kagan thinks Cablevision subs, which generated $95.26 revenue/month each in Q2 2005, are worth more like $5,385 each. Even accounting for the 20% LBO discount, the original bid placed a value of $4,791/sub on the assets.

"Current discounts continue to ignore cable's potential," says Kagan Research senior analyst Robin Flynn. "Investors are still worried about stiff competition on the data side from telcos discounting HSD and on the video side from aggressive DBS pricing. We think the advantage lies with the providers that can offer the most services and versatility, and, at this point, that's still cable MSOs."

Telcos have yet to prove their offering will differ dramatically from cable's, and while content providers may experiment with various distribution platforms, they still depend on cable to carry their programming to the most viewers.

Ironically, it is the growth of cable's HSD as well as DSL services that is making a shift to online viewing even plausible. But as MSOs grow their HSD subs, they can find ways to become the on-demand purveyor of choice.

With Sprint's recent announcement of a joint venture with four of the country's largest cable companies plus cable's ability to leverage networks to offer more kinds of on-demand content, Kagan forecasts that unless a mass shift to Web viewing takes place in the medium term, cable companies will stay in the game.

In-depth coverage of the cable industry is available in the new and expanded BROADBAND CABLE FINANCIAL DATABOOK 2005, Kagan's 25th annual industry assessment. This annual compendium deconstructs cable investments, funding trends, operating costs and stock market charts for cable MSOs; provides details on private market valuations, PMV comparisons and public trading multiples; and compares debt and churn reduction with the cost of advances in set-tops (HDTV and DVR), rollouts of Hi-Def tiers and services, on-demand services, telephony and home networking.

For Table of Contents and more information on BROADBAND CABLE FINANCIAL DATABOOK 2005 go to www.kagan.com/BCFD110705

About Kagan Research, LLC.

Kagan Research consulting and publishing services offer exclusive financial data and analysis, relevant market advisories and expert 5- to 10-year projections on cable and DBS, broadcast television and radio, movies, entertainment and sports, digital, wireless and Internet technologies and media finance and law.

Source: Business Wire

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