Cablevision, Tci In $1bn Deal

Wall Street on Monday greeted news of a link-up worth at least $1billion in the New York cable television market with strong demand for shares in Cablevision Systems and Tele-Communications Inc, the prospective partners.

Cablevision stock surged more than 20 per cent in morning trading, rising $7 1 /2 to $42 1 /8 on news of an agreement with TCI, which was trading 7 per cent higher at $16 3 /16. The link-up will increase Cablevisions subscriber base in one of the countrys richest metropolitan areas by almost 50 per cent.

The deal is the biggest yet in a series promised by Leo Hindery, TCIs new president and chief operating officer, who plans to shed almost one-third of his groups $14 billion debt. It also marks an important step in the restructuring of the US cable industry, in which systems are being linked in regional clusters to improve operating efficiency and increase profits.

 

Under the agreement, Cablevision, the nations sixth-largest operator, will take over TCIs 10 cable systems in the New York area, boosting its subscriber base in the region by 820,000. The consideration, comprising $422.4 million of new shares and the assumption of about $670 million in TCI debt, will give TCI a 33 per cent stake in Cablevision and two seats on the board.

Hindery said the deal, which followed the announcement last Friday of a smaller link with Adelphia in the west of New York state, was one of the most important of the series on his schedule. They will give TCI management and operational control over fewer cable systems, helping to focus our efforts on better serving communities and customers at the local level, he said.

One of Hinderys first moves in the TCI shake-out was to reverse a strategy introduced less than a year ago, which involved cutting local and regional sales and marketing and concentrating them at group headquarters in Denver, Colorado. Hindery has quickly overturned the strategy introduced by John Malone, TCI group chairman, who ceded day-to-day control over the company earlier this year.

Six regional divisions have since been established, and are being reinforced with staff, some of whom were made redundant in last years cost-cutting efforts. The effect of the deal on Cablevisions share price suggested a revival of investors faith in the company, which will end up with 3.6 million customers compared with TCIs 14 million.

The Dolan family, who founded the company and will maintain control, was recently criticised for an allegedly over-generous $765 million deal with ITT which gave it full ownership of New Yorks Madison Square Garden sports operations.