Bethpage, New York-based Cablevision surged 9.6% to close Monday at $18.44.
The potential for mergers among pay-TV operators has grown in the wake of Liberty Global (LMCA )'s decision to increase its stake in Charter Communication (CHTR ) to 27%. The investment by John Malone, Liberty's chairman, has prompted speculation that Charter might attempt to acquire Time Warner Cable (TWC - Get Report) even though it is a smaller company.
Telecommunication companies have been looking to consolidate to offset rising programming costs.In a July 1st report, Bank of America analysts said the most likely scenario would be a Time Warner Cable bid for Cablevision. "Both trade at similar multiples, share truly contiguous footprints," wrote the team led by Jessica Reif Cohen, "and the transaction could be done with significantly less leverage for TWC than a CHTR deal." The analysts said that the combination could be established and by raising about $8 billion, Time Warner could minimize dilution during a share buyback. Bank of America assumes Cablevision could be bought back at $27 per share, and would lead to 32 million additional shares being issued. The analysts state that this situation would lead to "less than 10% dilution of equity at current levels." Nonetheless, investing in both Cablevision and Time Warner may be risky as "the stocks are currently trading on deal-speculation rather than fundamentals" said Bank of America in the report. The Dolan family-controlled company which owns Madison Square Garden and the AMC network has rejected previous buyout offers. -- Written by Robert Arenella in New York >To contact the writer of this article, click here: Robert Arenella.