Investors are counting on Rocco Commisso being able to repeat his performance reducing debt and cutting costs, this time at a much larger Mediacom Communications.

Last week the company closed the acquisition of systems serving 94,000 subscribers in Missouri, the first in a series of previously announced system purchases from AT&T Broadband that will double Mediacom's size to 1.6 million subscribers.

Mediacom shares are up nearly 20% since mid-June. Before the run-up, Mediacom shares were depressed. The stock decline was likely a result of confusion over the AT&T deal and recent stock and debt offerings. But that decline, coupled with margin improvements Mediacom is expected to extract from the acquired systems, has proved to be a tonic for the stock.

Jim Boyle, a cable analyst at First Union Securities, recently upgraded his rating on Mediacom to a strong buy from buy, calling the stock ?a newfound bargain.?

?We believe that the sizable AT&T deal provides catalysts, as [Mediacom] has often improved the operating margin of past acquisitions and Mediacom is among the sector's leaders in operating margins,? Boyle wrote in a recent research note.

When the AT&T acquisitions close, the company will have about $1 billion of unused bank credit lines, a higher level than it had prior to the deal, says Commisso, Mediacom's chairman and CEO.

?We'll be in a stronger financial position? after the AT&T deal, Commisso says.

Once Mediacom implements its own operating practices, which include strict cost controls, the margins for the new systems should increase. As Mediacom notes in a recent Securities and Exchange Commission filing, the AT&T systems saw an operating income margin of 35% for 2000; Mediacom expects it can nudge that margin closer to its 47% margin for the same period.

?We expect to aggressively go out and reduce some of the expenses associated with these assets,? says Commisso. For example, Mediacom expects to shave $28 million on an annualized basis in corporate overhead alone from the newly acquired systems, he says.

Commisso expects to improve the margins without a headcount reduction at the acquired systems. ?We have extended offers to over 99.8% of the people in the field,? he says.

The purchase price for the Missouri systems is approximately $309 million. Mediacom expects to close acquisitions in Georgia, Illinois and Iowa over the next 45 days.

To fund its purchases from AT&T, Mediacom, based in Middletown, N.Y., raised more than $1 billion. The company sold 29.9 million shares at $15.22, for a total of $455 million, and took in another $172.5 million by selling senior notes convertible into Mediacom stock at $18.72 per share. Those issues followed a private sale of $400 million in bonds.

Commisso and the analysts who follow the company are confident in the company's ability to reduce the debt Mediacom is picking up.

?They've been in a position before where they had higher leverage and rapidly de-levered in one or two quarters,? says Boyle at First Union. And while ?now it's harder to move the meter because it's a larger company,? he says, ?nonetheless if you've done it?before, investors will not be overly concerned.?

?We definitely see Mediacom de-leveraging over the next five years,? adds cable analyst Laura Martin of CS First Boston.

Commisso says he is not expecting any surprises on up the upgrade front. Fifty percent of the AT&T systems Mediacom is acquiring are already upgraded, with the roll out of advanced services well underway.

?We have done our due diligence,? Commisso says, a process that included sending 40 engineers out to the field to examine the systems. ?Now it's just a question of getting it done,? and rolling out broadband services as soon as possible, he adds.

Mediacom plans to spend a total of $730 million between now and the end of 2003 to fund its capital expenditures, including upgrading its systems, consolidating headends, and network maintenance.

Looking ahead, don't look for any huge acquisitions as Mediacom digests the AT&T systems. Any acquisitions Mediacom looks at now would likely by adjacent to Mediacom's current systems. ?It's hard to match the cash flow of contiguous systems,? says Boyle at First Union, due to the ease with which they can be plugged into an operator's existing network.

Ultimately, of course, ?there are economic incentives to be large,? says Martin of CS First Boston, meaning six million or more subscribers. So as Mediacom grows increasingly larger, it may make sense for a bigger company to buy Commisso out, she says. So ?the more he buys the better off he is.?

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