Time Warner Cable Inc.
), the second largest cable multi service operator (MSO) in the
U.S., has made a bid to acquire
Cablevision Systems Corp.'s
) business unit - Optimum West. The acquisition will make Time
Warner Cable a key player in four distinct US markets.
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If the cable MSO succeeds in buying Optimum West then it could
add up to 300,000 cable customers in Montana, Wyoming Colorado
and Utah. However, none of the companies have disclosed the
financial details of the deal, which is expected to be reached
either in January or February 2013.
In 2010, Cablevision Systems had purchased a controlling stake in
smaller cable rival Bresnan Systems from Providence Equity
Partners for a total consideration of $1.37 billion and renamed
it as Optimum West. However, since November 2012, the company has
been trying to sell the cable assets, attracting the interest of
several bidders in due course.
According to Bloomberg, other than Time Warner Cable, currently
there are two more potential bidders for the cable firm, which
Charter Communications Inc.
) and Suddenlink Communications. The deal, if completed, will be
the second acquisition by Time Warner Cable in quick succession
after it acquired Insight Communications for $3 billion,
eventually adding 760,000 cable customers in Indiana, Kentucky
At the end of the third quarter of 2012, the company's
Residential Video subscribers' base was 12.159 million. Time
Warner Cable lost nearly 140,000 residential video subscribers in
the previous quarter amidst stiff competition from telecom
service providers like
Verizon Communication Inc.
), which are capturing market share from cable MSOs by offering
fiber-based TV to its subscribers. Furthermore, they are also
facing challenges from the non-cable operators, which provide
live video streaming services over the Internet.
We believe bidding for the cable firm is a strategic move by the
company to revamp its falling pay TV business. Apart from
enhancing the company's impressive customer base, the acquisition
of Optimum West business could also boost its top line. On the
flip side, continuous acquisitions could increase the company's
leverage, which in turn could hurt its margin.
We retain our long-term Neutral recommendation on Time Warner
Cable Inc. Also, it has a Zacks #3 Rank, implying a short-term