Cable Operators

Mediacom Still Cheap After Privacy Rejection: Analysts

9/13/2010 1:24 AM Eastern

Mediacom Communications’
rejection of chairman and
CEO Rocco Commisso’s buyout
offer on Aug. 31 sent the calculator
fingers of some analysts into
a frenzy last week, attempting to
assign a proper valuation to the
small-market operator. The results:
Even at the higher-than-expected
range of $8 per share suggested
by Mediacom’s board, the
stock still appears to be cheap.

Commisso had offered $6 per
share for the Mediacom stock he
didn’t already own in June. According
to reports, the chairman
and CEO raised his offer to $6.40
per share and later indicated he
was willing to go as high as $7.35
per share. When the board countered
with an $8-per-share target,
Commisso decided to abandon
his plan.

According to a research report
by Miller Tabak media analyst
David Joyce, $6.40 values Mediacom
at about 6.7 times 2010 estimated
operating cash flow. At
$7.35, the multiple rose to 6.8
times and at $8 per share, to 6.9
times. Even at the highest price —
which would represent a 24% premium
to Mediacom’s Sept. 8 close
of $6.45 per share — the multiples
are still short of the 8.5 times private
market valuation of Bresnan
Communications, the small market
operator that is being purchased
by Cablevision Systems.

In a research note, Joyce adjusted
his revenue and cash-flow estimates
for the operator slightly — he
expects 2010 revenue of $1.512
billion instead of $1.519 billion
and operating cash flow of $556
million, down from $559 million.
Still, Joyce kept his shortterm
$8 per share price target but
scrapped his $14 per share longterm
target on the stock, noting
its strong free-cash-flow generation
and high leverage.

“We are keeping our ‘buy’ rating
on Mediacom shares, due to
the relatively cheap level the
shares currently trade at, and the upside from here to the rumored
valuation levels in the
failed privatization attempt,
which could be revived again
at some point by the chairman/
CEO,” Joyce wrote. “We believe
Commisso would be satisfied
with allowing public-market
valuations to truly recognize
the powerful free-cash-flow
generation capability at Mediacom
and other companies, and
expand valuation margins.”

Pivotal Research Group principal
and media and communications
analyst Jeff Wlodarczak
wasn’t quite as optimistic as Joyce
— he has a “hold” rating and a
$5.50 per share 2011 target on
the stock and values the shares
at about 6.6 times 2010 cash flow.
Wlodarczak was not surprised
that Commisso dropped his bid,
adding in a note to clients that he
believes Mediacom will now focus
on retiring stock over time
and reducing debt.

October