Cablevision Buy of Bresnan Requires Franchise Approvals
Before Cablevision’s acquisition of Bresnan Communications can proceed, approval from various local video franchising authorities in Montana, Utah, Wyoming and Colorado will be needed, industry attorneys said Monday. Cablevision agreed to buy the western cable operator for $1.4 billion and is putting less than $400 million in equity into the deal. The rest will be financed with debt, Cablevision said. The deal is structured in a way that its shareholders and bondholders won’t be on the hook for the debt should Bresnan’s operations falter, the buyer said.
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Some stock analysts liked the deal because Bresnan doesn’t operate under the competitive threat that Verizon’s FiOS and AT&T’s U-verse services pose to other operators. But Cablevision won’t benefit from the streamlined video franchise process that those companies achieved in other states. The states where Bresnan operates have not recently changed their video franchising laws, according to NCTA. “Almost every one of the state models is a pretty automatic transfer process,” said Joseph Van Eaton of Miller Van Eaton, an attorney who represents local governments. “What the localities should be doing is reviewing the compliance of Bresnan with the franchise agreements,” he said. “And they've got to look at Cablevision and say ‘Will Cablevision be able to deliver the service we want?'"
Some local governments may also have to clarify their franchise agreements with Bresnan because of the deal, Van Eaton said. Because Bresnan was run like small company -- it has about 300,000 subscribers -- many of its agreements with local governments weren’t always explicit, he said. “There were understandings reached. Everyone knew what the deals mean, but it wasn’t very detailed,” he said. “With this transfer, I think several communities are going to have to say ‘What is clearly written out in the agreement and what is understood?'"
Federal agencies will also probably review the deal, said Jim Baller of Baller Herbst, which represents municipalities in telecom matters. Bresnan has a handful of microwave and radio licenses it uses to operate its business, and was a winning bidder in FCC Auction 73 for some 700 MHz spectrum. Cablevision said it expects to complete the deal in late 2010 or early 2011. “We hope and expect to secure all necessary approvals in a timely and efficient manner,” a spokeswoman said.
Cablevision Chief Operating Officer Tom Rutledge said it was attracted to the assets because it thinks it can sell more products to Bresnan’s subscribers. “The opportunity is not in rate increases, it is in growing the amount of services to all potential subscribers in these communities,” he said. “The biggest opportunity we have is revenue and growing the business successfully, through time, like we've been able to grow Cablevision.” Shares in Cablevision rose 5 percent Monday.
Cablevision is paying a premium to public-market valuations for cable systems, Sanford Bernstein analyst Craig Moffett wrote investors. He estimated the price equals about 8.3 times Bresnan’s estimated 2009 gross earnings while Cablevision trades at 6.3 times 2009 earnings. “The deal highlights the gaping differential between private and public market values in the cable industry,” he said. “The purchase price works out to $4,250 per subscriber, again a steep premium to all … [other publicly-traded cable operators] save Cablevision itself.”