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Industry chatter about possible mergers and acquisitions involving big cable operators has grown louder as of late, but Wells Fargo analyst Marci Ryvicker on Friday cautioned investors that big deals remain “a long shot.”
“We view cable M&A as a long shot — return to fundamentals,” she said in the title of her report.
Explained Ryvicker: “The heightened focus on cable M&A seems to be driven by two factors — one being programming costs and the other being Dr. John Malone‘s re-entrance into Cable Land.”
Malone’s Liberty Media recently bought a 27.3 percent stake in Charter Communications, and the mogul in recent weeks has repeatedly talked about the need for cable consolidation.
“While we don’t disagree with Dr. Malone’s positive stance on cable consolidation, we see a number of issues that make many of these transactions unlikely to occur in the near to medium term,” Ryvicker wrote.
She then highlighted hurdles, such as price and family control issues, for four deal scenarios that have recently drawn industry chatter, including a possible acquisition of Time Warner Cable by Charter or vice versa, as well as a takeover by either company of Cablevision Systems.
Concluded Ryvicker: “With the ‘M&A’ stocks — Charter, Cablevision and TW Cable — up 26 percent on average (versus the S&P 500’s 8 percent) since March 24, we think it’s time for investors to focus on fundamentals.”
She highlighted the outlook for U.S. cable giant Comcast Corp. and reiterated her “outperform” rating on its stock.
“What if we’re wrong?” Ryvicker also asked in her report. “We say buy Dish! The cable stocks seem to already reflect hefty M&A premiums whereas Dish does not,” she argued. “And we happen to think that successful cable M&A could pave the way for a Dish-DirecTV transaction — at least from a regulatory perspective.”
The analyst has an “outperform” rating on Dish.
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