News

Malone, Dolan Bid on Bresnan Systems

6/14/2010 4:46 AM Eastern

The auction for Bresnan
Communications reached a fever
pitch last week as a number
of heavy hitters — including
cable legend John Malone and
Cablevision Systems — made it
to the final round of bidding.

According to executives familiar
with the bidding process,
it is still too early in the process
to determine a winner. About
eight bidders have made it to
the final round, those sources
said, including Cablevision,
Malone (through Ascent Media),
Suddenlink Communications,
a handful of financial
players including private-equity
firm TPG and Alaskan cable
operator General Communication
Inc.

Other early round bidders,
such as Charter Communications,
overbuilder Knology and
cable entrepreneur Steve Simmons
(with the backing of privateequity
giant Blackstone Group)
have dropped out of the auction,
sources said.

Sources familiar with the process
said that the next step is to
pare that list to a manageable level,
perhaps down to the top three
bidders.

“Then the real negotiations
begin,” said one source familiar
with the process, adding that the
auction is not expected to conclude
until the first week in July
at the earliest.

While it is still too early in the
process to determine a lead bidder,
sources familiar with the
deal said that Malone’s interest in
Bresnan — through Ascent Media
— is a big boost, signaling at least
the desire for the cable legend to
return to U.S. cable distribution.

“A return of Dr. M, even on a
relatively small scale, is a nice
vote of confidence in the industry,”
wrote Pivotal Research
Group principal and media and
communications analyst Jeff Wlodarczak
in a report last week.

Malone is a director of Ascent,
which was spun off from Discovery
Holding Co., in 2008. He also
controls about 30% of the voting
power of the company, which
provides pre- and post-production
work for cable, broadcast
and film. Ascent is headed by former
Liberty executive and longtime
Malone confidant William
Fitzgerald.

Bresnan, which went on the
block in March, has about 320,000
subscribers in Colorado, Wyoming,
Montana and Utah; it is
considered to be a well-run operation
that has high penetrations
for advanced services.

Providence Equity Partners,
which holds a majority interest
in the company (Comcast owns
30%), hired investment bankers
UBS and Credit Suisse in March
to oversee the auction. Providence
has been with Bresnan
since its late founder — cable pioneer
Bill Bresnan, who died in
November — bought the systems
from Comcast in 2002. The decision
to sell is in no way connected
to Bresnan’s death, said people familiar
with the process. Instead,
it’s more about private equity
generally staying with an investment
for five to seven years before
seeking an exit. Providence
has had the Bresnan investment
for almost eight years.

According to sources familiar
with the auction process, last
Tuesday was the deadline for
bids, but as of last Wednesday
night offers were still coming in.
Those sources said the bids were
expected to be in the $1.2 billion
to $1.6 billion range.

If Ascent proves to be the winning
bidder, it would be a return
of sorts to cable distribution
for Malone, who sold his Tele-
Communications Inc. in 1999
to AT&T. In a bit of a twist, the
Bresnan systems were once part
of TCI — its Laramie, Wyo., and
Bozeman, Mont., systems were
among the first that TCI founder
and Malone mentor Bob Magness
ever purchased.

“There is some sentimental interest
there,” said one person familiar
with the auction process
who asked not to be named.

While Malone’s interests
lie primarily in programming
(through Liberty Media), international
cable distribution (his
Liberty Global is the largest cable
operator in Europe) and satellite
TV (he still owns a piece of
DirecTV), he maintains a respect
for cable distribution.

“I’ve always believed that the
power of distribution, combined
with the ability to distribute content,
creates quite a bit of value,”
Malone said at Liberty Media’s
October investor meeting in New
York.

While some analysts believe
that Malone will likely fall short
in the bidding — Wlodarczak
wrote that other strategic players
may be able to wrap more synergies
into a higher bid — Miller
Tabak media analyst David Joyce
said anything is possible.

“Malone likes cable cash flow
and at the right price, it’s a good
deal,” Joyce said.

And it could bode well for cable
valuations, which have been
in the doldrums of late. A $1.2
billion price for Bresnan would
translate into a valuation of more
than $4,000 per subscriber for the
small-market operator, according
to Joyce. Currently, cable companies
are trading at an average of
about $3,322 per subscriber, Joyce
added.

Ascent Media’s share price was
relatively stable after news of their
bid broke — the stock was unchanged
on June 9 at $26.08 per
share and was up 88 cents each
to $26.96 on June 10. The same
could not be said of another publicly
traded company said to be
bidding on the assets, Cablevision
Systems. Cablevision stock
went on a roller coaster ride last
Wednesday after Joyce wrote that
it could be among the bidders for
Bresnan.

Sources familiar with the process
confirmed that Cablevision
had made it to the second round
of bidding, but said they did not
expect the Bethpage, N.Y.-based
MSO to be too aggressive.

Still, investors made it clear
that they wanted Cablevision to
steer clear of acquisitions, driving
the stock down as much as
$1.45 per share (6.1%) on June
9 before it closed at $22.15 per
share, down 5.6%, or $1.32 per
share. The stock rallied the next
day — it closed at $23.37 each,
up $1.22 per share (5.5%), according
to the NASDAQ Web
site.

In a statement, Cablevision
said it has a longstanding policy
of not commenting on media
speculation.

A Cablevision bid for Bresnan
would seem odd, given its strategy
of focusing on the New York
metropolitan area. While CEO
James Dolan said that the company
would consider properties
outside its New York-area footprint,
the Bresnan systems are
clear across the country and
don’t appear to meet Cablevision’s
criteria for assets that
would benefit from its MSOs
management touch.

A better fit for Cablevision, Collins
Stewart media analyst Tom
Eagan suggested, would be Charter
Communications’ systems in
Fairfield County and New Haven,
Conn., with about 100,000
customers.

In an interview with Multichannel
News
in May, Dolan said Cablevision
would consider looking
outside its footprint for systems
that could lack the operating effi
ciencies and plant capacity that
Cablevision enjoys.

“I would like the opportunity
to take an operation that
doesn’t have all those efficiencies
and all that advanced operating
plant and apply it there
and see if we couldn’t do the
same things that we’ve done in
our own systems,” Dolan said in
May.

FACE VALUE
Miller Tabak media analyst David Joyce estimated
that a $1.2 billion price for Bresnan could translate
into a valuation of more than $4,000 per subscriber
for the small market operator. That is 22% higher
than the current average trading value of $3,322
for most cable operators.

September