Cablevision Stock Soars on Merger Speculation

Altice Chief Says He Wants to Expand U.S. Presence

Cablevision Systems stock soared Friday after Altice chairman Patrick Drahi said in a Wall Street Journal profile that he wanted to expand into the U.S., and would be interested in pursuing cable companies like  Cablevision and Cox Communications.

Cablevision shares rose as high as $27.09 each (up 9% or $2.24 each) before closing July 10 at $26.67per share, up 7.3% or $1.82 each. The stock is up about 12% since June 30.

Cablevision has been the subject of consolidation speculation for more than a year, and Altice’s entrance on the U.S. cable scene with its pending $9.1 billion purchase of Suddenlink Communications added another deep-pocketed player to the mix.  Altice CEO Dexter Goei has said in the past that he would like to use Suddenlink as a vehicle to acquire other U.S. operators.  And after a restructuring that split Altice’s shares into two tiers, which would allow it to issue equity for deals without diluting the chairman’s voting control, Drahi can be even more aggressive in his pursuit of U.S. cable assets.

“We’ll buy a second, a third and one day we’ll be able to say: ‘Hello Mr. Comcast!’ or ‘Hello Mr. Charter!’” Drahi told the Journal.

Cablevision, with about 3 million subscribers in the New York market, is about twice the size of Suddenlink’s 1.5 million customers and could attract a high price. Some analysts have said it could attract a price of $31 per share or more while others have warned that its heavy exposure to Verizon Communications’ FiOS TV service makes it a risky buy. MoffettNathanson principal and senior analyst said in a June 30 report that the stock is worth about $8 based on the competitive threat and that the company is “all but unacquirable.”

Cablevision declined comment. But in May, CEO James Dolan seemed to throw his hat in the M&A ring at INTX: The Internet & Television Expo in Chicago when he said during a General Session panel that his New York market would be better served if it were run under one operator.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said he expects Altice to make an offer for Cablevision sometime this year.

“At the right price I think Cablevision would sell to Altice,” Wlodarczak said. “If Altice wants scale, there are not that many assets left.”

Cox, which has about 4 million customers, also is considered a possible candidate, but the company has said repeatedly that it is not for sale. That stance hasn’t changed.

“We’ve been clear in the past that we’re not for sale and that remains our position,” Cox spokesman Todd Smith said in a statement. “Of course, we’ll continue to explore any potential growth opportunities that align with our business objectives.”

Telsey Advisory Group media analyst Tom Eagan added that while the market expects further consolidation in the wake of Charter’s $78.7 billion purchase of Time Warner Cable and Dolan’s comments at the INTX Show indicate he could be open to a potential merger transaction, he still sees some obstacles to a deal.

“With limited sub and revenue growth potential, I don't see another operator or strategic company acquiring Cablevision,” Eagan said in an e-mail message, adding that Drahi’s comments could be an attempt to draw out other potential acquisition targets, like Mediacom Communications.