Cablevision's (NYSE: CVC) significant overlap with Verizon FiOS and its "overvalued" share price make it an "un-acquirable asset," despite rampant speculation that it'll be the next cable company purchased in the ongoing M&A wave, MoffettNathanson analyst Craig Moffett wrote.
Since Comcast's (NASDAQ: CMCSA) proposed takeover over Time Warner Cable (NYSE: TWC) fell apart in April, triggering the ongoing wave of mergers and acquisitions within the cable industry, Cablevision's share price is up 23 percent, closing June 24 trading at $24.66 a share.
That price is artificially high, the analyst argues, and exacerbates--from an M&A perspective--Cablevision's core problem.
Cablevision, Moffett writes, suffers from competitive overlap from fiber-to-the-premises services from Verizon FiOS, which the analysts believes will eventually cover 70 percent of Cablevision's footprint across New York City, Long Island, Rockland and Westchester Counties, and Northern New Jersey.
"Never mind that every recent cable acquisition has trumpeted the low FiOS overlap of acquired systems as a defining attribute," Moffett wrote.
Prior to the M&A wave, Cablevision's share price suffered relative to the rest of the cable industry, with the company in a Catch-22 position of losing margin as it dropped prices for services to better compete with FiOS, or held them steady and lost subscribers.
"After factoring in its already below-market trailing growth rates, and its FiOS-affected forward growth prospects, Cablevision's shares appeared markedly overvalued even before the latest round of speculation. Now, we would argue that its pre-baked acquisition premium makes it all but un-acquirable," Moffett wrote.
"We conclude that FiOS availability in Cablevision's footprint is still rising rapidly--with much more to come as already built facilities are made available to already-passed," he added.
At the INTX trade show in early May, Cablevision CEO James Dolan made an aggressive push to merge with TWC, which owns the cable charter in the Manhattan region.
Consolidating the New York cable market would solidify the cable industry's leverage in the region over FiOS, argued Dolan, whose argument was backed by most analysts.
Charter Communications (NASDAQ: CHTR) ended up signing a $56.7 billion agreement to buy TWC just days later.
- read this MoffettNathanson report (sub. req.)
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