Market Watch

Suddenlink to Acquire Yet Another Batch of Systems


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Cequel III Communications, owner of Suddenlink, the seventh largest cable operator in the US with over 1.3m subscribers, has agreed with News Press & Gazette to acquire its NPG Cable for $350m. The acquired systems serve 83,000 customers, representing 210,000 revenue generating units (RGUs), in Missouri, California and Arizona. The sale is expected to close in Q1 2011.

Analysis
Suddenlink's rapid growth in the past eight years has been fueled mostly by acquisitions. Since its launch as Cebridge Connections in 2003 with a customer base of 325,000, the operator has acquired systems serving approximately 1.5m customers in over a dozen states. Its largest deal to date was the 2006 acquisition of systems serving 940,000 customers from Cox Communications at a per-subscriber price near $2,400. Other deals have varied in price from $1,000 per sub for Alliance Communications in 2004 to $3,200 per sub for some of Charter's systems in 2006. The disclosed per-sub price for the latest acquisition NPG Cable was $4,220, making it Suddenlink's most expensive purchase.

While NPG's price appears unusually steep for Suddenlink, it is not too steep for the market. Earlier this year, Cablevision agreed to pay a total of $1.37bn ($4,300 per sub) for Bresnan Cable in a heated auction that involved Suddenlink itself among others. Having lost Bresnan to Cablevision, Suddenlink may have elected to pay a premium for NPG Cable in order to avoid a similar outcome, especially given the presence of a couple of active shoppers in the market such as the over-builder Knology.

Suddenlink's keenness to acquire NPG Cable may be also explained by (1) the virtual lack of telco competition in its footprint, and (2) the strategic proximity of some of its systems to existing Suddenlink assets. The latter point is especially important for this cable operator whose systems are scattered throughout the country in over a dozen states. By interconnecting some of NPG's assets with the adjacent Suddenlink systems, the company will be able to cut costs and drive up spot advertising revenue, which will improve margins at the legacy and acquired systems.

Needless to say, the fact that cable systems are fetching such high prices in a down economy demonstrates the high level of confidence the industry has in its future. Indeed, the larger MSOs and their lenders appear to be unfazed by the unusually negative video subscriber trends in Q2 and Q3 as they continue to consolidate their lucrative businesses by acquiring more systems throughout the country.

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