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K.C. Neel
The cable deal market may cool off a bit this year after sizzling in 1998. But analysts predict some significant pacts are in wings just waiting to be cut.
To be sure, few transactions come close in size or scope to AT&T's Corp. $32-billion acquisition of Tele-Communications Inc. Yet experts agree some of the deals expected this year will be just as important in shaping the industry future.
For one thing, many people believe joint venture and system trade deals will keep up with last year's galloping pace. AT&T's phone partnership venture with Time Warner and the 700,000-subscriber system trade between Time Warner and MediaOne both announced last week, are just the tip of the iceberg, some say.
A number of the industry's elite and long-time executives are also reaching retirement age and some may be considering selling out as a way to plan their estates. Industry pundits point to Century Communications Corp. chairman Leonard Tow, 70, as an example. Tow's children aren't involved with the company, leaving him with no one to pass the company on to. He hired Donaldson, Lufkin, Jenrette Securities last year to find a buyer.
The sale of Century is pivotal to the entire industry, says Paul Kagan Associates senior analyst Sharon Armbrust, because "anyone interested in Century - and especially Century's Los Angeles operations - is signifying they want to be in the game for the long haul."
Sources say that even though Paul Allen couldn't cut a deal with Tow last year, the reclusive billionaire and neophyte cable operator remains interested in Century's assets. Allen has accumulated 2.9 million customers and is the seventh largest MSO, yet he continues to lack presence in a major market
"By gaining control of Los Angeles," Armbrust says, "Allen would have a high-profile outlet to spotlight his wired world concept."
Other analysts hint that Cablevision Systems Corp. and Adelphia Communications Corp. could be takeover targets in 1999. Like Tow, Cablevision founder Charles Dolan and Adelphia founder John Rigas have become elder statesmen in an industry that's now a half-century old. Yet some watchers say that because Dolan's son James runs Cablevision and Rigas' three sons - Tim, Mike and James - are actively involved in Adelphia's daily operations, there's little reason for them to cash out just yet.
Meanwhile, some analysts see MediaOne Group as big a buyout target as Century these days.
"With management controlling only a small portion of the stock," says Ted Henderson of Janco Partners, "we expect that someone is going to take a run at MediaOne's broadband assets in 1999."
MediaOne's sheer size - some analysts believe it would take about $40 billion to buy the whole company - could deter suitors. Still, Henderson says MediaOne is primed to be sold and thinks Allen is the perfect candidate to buy it.
Time Warner may also want MediaOne, which owns 26% of Time Warner Entertainment, Armbrust says. Sources say Time Warner would like to get out from underneath its heavy-handed partner and buying them out altogether may be the only way to make it happen. But Time Warner chairman, Gerald Levin said last week he's not looking to make any big aquisition any time soon. The company will use any free cash to buy back its stock instead. MediaOne says it has no desire to sell either its TWE stake or its cable operations. But analysts assert if an attractive enough offer was extended, it'd likely be accepted by shareholders.
"(MediaOne's) not like TCI, where (chairman) John Malone has voting control [by owning the majority of TCI's supervoting Class B shares]," Henderson says.
All that sounds like a lot of M&A activity, yet most analysts believe the number of mergers and buyouts will not match last year's total - the AT&T/TCI deal notwithstanding. Billionaire Allen, who spent a whopping $7 billion to buy Marcus Cable Co. and Charter Communications, shows no sign of cooling his jets, yet he may be only one of a select few willing to pony up the money needed to expand this year.
"There's been a lot of deal-making in the past couple of years," Henderson says. "I think you'll see a lot of operators say,`OK, let's digest what we have now and then think about adding to our plate later.
Others, like Daniels & Associates chairman Brian Deevy, disagree.
"Operators know that size is critical and there is plenty of capital available to make acquisitions," he says. "People can digest what they bought last year without shutting down their consolidation efforts."
In that vein, Merrill Lynch analyst Jessica Reif Cohen believes AT&T will continue to be opportunistic even though it'll have its hands full integrating TCI. Not only will it be active in cutting partnership deals with other operators, she says, it may also be willing to buy systems where necessary. Cohen says Ma Bell could purchase Cablevision Systems, with its stable of attractive cable and programming assets, just to avoid the company being sold to someone else.
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