Deal Talk Fires Up Pay TV Stocks

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Liberty Media's John Malone

Latest consolidation chatter focuses on a possible Charter-Cox combination and a possible Cablevision sale.

Deal chatter in the pay TV industry re-emerged Friday as Wall Street once again discussed consolidation options, boosting some sector stocks.
Cox Communications, the third-largest U.S. cable operator, has held talks with John Malone's Liberty Media about deal options for Cox and Charter Communications, in which Liberty owns 27 percent stake, Bloomberg News reported.

Details of a potential combination and the question of who would be the acquirer haven't been discussed, according to the report. Representatives for Charter, the fourth-largest U.S. cable firm, and the family-controlled Cox declined to comment.

Malone recently described Charter as a potential industry consolidator.

Meanwhile, Cablevision Systems CEO Jim Dolan told an earnings conference call on Friday that he wouldn't totally rule out a deal, saying "you never say never."

Several cable stocks rose on the renewed deal talk. The stock of Cablevision was up 4.1 percent as of 2:45 p.m. ET. Charter jumped as much as 7 percent and was up 4.4 percent at that time. Time Warner Cable's stock was down slightly.

Cablevision's and Charter ownership by families has long been seen as a hurdle for an acquisition by another company. However, cable companies have recently discussed the benefits of consolidation to have more scale in talks with content companies.

Outgoing Time Warner Cable CEO Glenn Britt had touted the possible benefits of mergers on Thursday.

And when asked about a possible deal between satellite TV giants DirecTV and Dish on Thursday, DirecTV CEO Mike White said: "Further industry consolidation does make sense to help address what I think are unsustainable cost increases for the average customer."

Moffett Research analyst Craig Moffett commented on possible pay TV deals in two reports on Friday.

Discussing the Cox-Charter talks, he said the news "certainly changes the landscape." A Cox deal, "if available, makes a ton of sense for Charter," he said. "We have no way of knowing whether the Cox family is indeed ready to consider a deal. However, if in fact they are, Cox could be a much more attractive partner for Charter than Time Warner Cable would have been, at least as a first step."

Liberty/Charter first approached TW Cable, which seems to have blown off the deal overtures.

"Cox, at 4.8 million video subscribers, is close to the same size as Charter at 4.4 million," Moffett explained. "Nosebleed leverage wouldn’t be necessary; a merger of equals would leave balance sheet room for subsequent deals, while still giving Charter the benefit of a doubling of scale."

Such a structure could also allow the Cox family to remain large shareholders in the merged entity.

In a separate note about Cablevision, Moffett said: "The recent run-up in Cablevision shares can be attributed to speculation that the Dolan family may finally be willing to sell. A better question might be whether anyone would be willing to buy."

The company’s second-quarter results showed underlying trends of declining subscribership, and "advanced services penetration is already saturated," with competitive pressures "far higher in Cablevision’s footprint than anywhere else in the United States," he explained.

Twitter: @georgszalai