News

Cable Stocks Nudged by Viacom-CBS

9/12/1999 8:00 PM Eastern

Cable stocks got a temporary lift from the proposed $36
billion merger between Viacom Inc. and CBS Corp., but many fell back the day after the
announcement.

Cablevision Systems Corp., the Bethpage, N.Y.-based MSO,
saw the biggest leap -- about $3.50 per share, to close at $76.50 Sept. 7. However, the
stock retreated slightly Sept 8 to $75.25.

SG Cowen Securities Corp. analyst Gary Farber said that
while the Viacom deal may have had something to do with the uptick in cable stocks last
week, there were other factors, as well

Among those was Liberty Media Group's announcement
that it would invest $493 million in UnitedGlobalCom, an Englewood, Colo.-based company
with several European cable operations.

"Anytime there is consolidation, stocks will move
up," Farber said. "I think for the rest of the year, cable stocks are going to
be strong performers, but I do think they could back off."

Another factor in the rise in Cablevision stock could be
speculation that the company may soon spin off its Rainbow Media Holdings Inc. programming
arm into a separate tracking stock.

But Cablevision wasn't the only cable stock that saw
its price rise after the Viacom announcement. Adelphia Communications Corp. shares rose
from $65.25 to $66.50 Sept. 7; Cox Communications Inc. rose $1.50 each to $38.50; and
Insight Communications Co. rose $2 per share to $29.63.

Other cable stocks that saw their prices rise by $1 or more
during the period include Jones Intercable Inc., Time Warner Inc., The Walt Disney Co.,
Liberty and USA Networks Inc.

USA shares may have surged because it has been among the
names bandied about for the next big broadcast merger, possibly with NBC. Other potential
suitors for NBC could be Sony Corp. and Seagram Co., the latter of which owns Universal
Studios.

The real buying opportunity, Farber said, was about two
weeks ago, when cable stocks were hit hard by high interest rates and regulatory
uncertainty.

"I think when you're looking at cable stocks, you
have to look at the chart," he said. "There is a very strong support level for
Cox, Comcast [Corp.] and Cablevision."

In late August, cable stocks were hammered by rising
interest rates, a lull in deal activity and possible federal regulation regarding open
access and rules that would limit cable ownership, prompting Goldman, Sachs & Co.
analysts Barry Kaplan and Lou Kerner to issue a report signaling possible bargains in the
cable arena.

Kaplan's and Kerner's analysis put cable-stock
valuations for the week of Sept. 3 at about 14.5 times year-2000 cash flow, down
considerably from a high of 17.5 times.

Kerner said that while the Viacom deal has raised the
profile of cable stocks among investors, it doesn't signal any fundamental changes in
the industry.

"I don't see Viacom/CBS to be a catalyst for the
cable sector," he added. "To some degree, it highlights the value of some cable
programming, which is good for Cablevision."

Kerner added that he continued to believe that cable stocks
were a bargain, given the potential for new services like high-speed data and telephony.

"I think long-term, they've got the fattest
pipe," he said. "The stocks will continue to do well. There are still a lot of
very positive events on the horizon."

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