Cable analysts: Altice's Drahi will target Cablevision, Cox, Mediacom

While European telecom magnate Patrick Drahi and his Luxembourg-based firm Altice SA could counter Charter Communications' (NASDAQ: CHTR) proposed $56.7 billion takeover of Time Warner Cable (NYSE: TWC), at least one media investment analyst says it's far more likely that he'll turn his attention to another U.S. cable property.

"While it is still possible that Altice counters on TWC, we do not believe that it can match Charter [and backer John Malone's] funding firepower and will ultimately lose out," wrote Macquarie Capital's Kevin Smithen. "In our opinion, Altice is more likely to turn its attention to Cablevision (NYSE: CVC) or privately-held Cox or Mediacom, in an effort to gain more fixed-line scale in order to compete against Charter and Comcast (NASDAQ: CMCSA)."

Cablevision has seen its stock price steadily rise in recent weeks, with CEO James Dolan aggressively stating a desire for a takeover and investors seeing the company as ripe for M&A. Cablevision's trading price was up just over 2 percent to $25.52 a share as of late-day trading on the New York Stock Exchange. The stock is up over 22 percent since May 19. 

In his investor note Monday, Smithen did not rule out a U.S. wireless play by Drahi. 

"Unlike Europe, we continue to believe that the U.S. is not yet a 'converged' market for wireless and wireline broadband services but that this trend is inevitable in the U.S. due to increasing need for small cells, fiber backhaul and mobile video content caching closer to the end user. In our view, Altice believes in convergence and so mobile will be a strategic objective in the long-term," Smithen wrote.

Meanwhile, another media analyst, Craig Moffett, lauded Charter's earlier joint acquisition, alongside Arris, of video tech company ActiveVideo.

"By comparison to today's mega-deal, Charter's recent deal with ActiveVideo and Arris is very small by comparison (just $47M from Charter)," Moffett wrote. "But it undoubtedly played a critical role. ActiveVideo will allow Charter to much more rapidly deploy its cloud-based graphical user interface to acquired subscribers in a cost-effective manner, by making that interface backward-compatible with Time Warner Cable and Bright House set-top boxes."

Moffett added that in the process, Charter "will neatly sidestep what otherwise would be the large merger integration expense of compatibility testing between user interfaces and pre-existing headend and customer premise equipment. The importance of this development cannot be overstated.  Not only will ActiveVideo save Charter a tremendous amount of capital spending that would otherwise have been spent on new set top boxes, it will also make for a much more rapid integration of the newly acquired properties.  It is only a small overstatement to say that this deal may not have been possible, at least at this price, without ActiveVideo's technology."

For more:
- read this MoffettNathanson blog post (sub. req.)

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