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Cox could be next takeover target

Charter expects more cable TV consolidation

– Charter Communications may not lick its wounds for long before trying to grab another piece of the consolidating U.S. cable industry.

Comcast CEO Brian Roberts swooped in last week to buy Time Warner Cable for $45 billion, nabbing the second-largest U.S. cable provider out from under Charter CEO Tom Rutledge’s nose. Charter, John Malone’s Liberty Media Corp. and advisers plan a board meeting this week to discuss options, according to a person familiar with the matter.

While Charter is unlikely to match Comcast’s bid, it will probably buy some of the 3 million subscribers Comcast plans to divest and then set its sights on another target, said Paul Sweeney of Bloomberg Industries. Closely held Cox Communications, the industry’s No. 3 provider with about 4.4 million subscribers, may be an attractive consolation prize to bolster Charter’s subscriber ranks, said CRT Capital Group. Bright House Networks and Suddenlink Communications also could help Charter expand, Raymond James Financial said.

Charter and billionaire Malone “have already made it clear that scale is important in this industry,” said Lance Vitanza, a Stamford, Conn.-based managing director and analyst at brokerage CRT Capital. “At this point, the most likely strategy is to accept defeat and move on to other acquisitions.”

Alex Dudley, a spokesman for Charter, declined to comment. A representative for Cox said the company isn’t for sale.

Time Warner Cable this month agreed to sell itself to Philadelphia-based Comcast in a stock deal valued at $158.82 a share when it was announced.

The offer was 20 percent higher than Charter’s rejected bid of $132.50.

Charter is unlikely to match Comcast’s bid and is willing to study any assets Comcast would sell, according to a person familiar with the matter, who asked not to be identified because the negotiations were private. Buying Time Warner Cable will add more than 11 million residential subscribers to Comcast’s 21 million video customers, compared with 4.3 million for Charter.

The 3 million subscribers that Comcast may divest could be worth about $17.6 billion, based on the value that the Time Warner Cable bid placed on each subscriber, according to an analysis from Sweeney, director of North American research at Bloomberg Industries, and Geetha Ranganathan, a media analyst with Bloomberg Industries.

Matthew Harrigan, an analyst at Wunderlich Securities Inc., estimates they could be valued at $13 billion to $16 billion.

Picking up divested subscribers won’t be the end of Charter’s dealmaking, according to Sweeney. Malone, who owns a stake in Charter through Liberty Media, has said mergers will help the cable industry cope with the lower video profit margins caused by higher programming costs and fewer new customers.

“John Malone’s stated intention is to participate in consolidation of the cable television industry,” Sweeney said. “He’s going to have to do a number of smaller deals to get to where he needs to be.”

Cox held talks last year about combining with Charter, people familiar with the discussions said in August.

Cox, which is owned by family-controlled Cox Enterprises Inc., would be an appealing takeover target for Charter because it has strong assets and is the next-biggest target available after Time Warner Cable, said Sweeney and Vitanza. Cox primarily provides cable services in the Southeast, Midwest and California.

“It’s basically the only really big bite you could take,” Vitanza said. “It’s the only one that would really allow them to add meaningfully to their position.”

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