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Analysts say that Cablevision's ability to fund operations over the next year are brighter, thanks to a Thursday decision by the Federal Communications Commission that could free up prospective buyers for Cablevision's Northcoast Communications subsidiary.
Northcoast Communications, which owns wireless telephone spectrum in New York and Boston, is seen by Wall Street as one of the key assets that the cash-burning cable operator Cablevision can sell in its quest to fund operations until it is able to generate free cash flow, or cash flow from operations once interest expense and capital expenditures are deducted. At an investor meeting last month, Cablevision executives acknowledged they might sell or seek a "strategic partner" for Northcoast.
A Northcoast sale, along with the concomitant increased liquidity for Cablevision, might improve the company's stature in the market, suggest analysts. Cablevision, beset by investors' general
-inspired mistrust of cable stocks, as well as company-specific concerns about its leverage and funding abilities, has seen its stock fall hard over the past year.
The stock, which rose 5 cents Friday to trade at $10.73, has more than doubled from its August low of $4.67, but it's still 78% off its 52-week high.
At issue is Thursday's proposal by the FCC regarding wireless spectrum originally auctioned off to mobile carrier NextWave, then reauctioned by the FCC in 2001 after NextWave welshed on its payments. Like used-car buyers waiting for a repo man to sell them a car he has yet to recover from its deadbeat prior owner, the telcos have yet to take receipt of NextWave's old spectrum -- what with the bankrupt carrier arguing in the courts that the FCC had no right to repossess it.
Meanwhile, the FCC has been arguing in other courtrooms that its late delivery of the spectrum to the prospective new owners doesn't free the buyers from their obligation to pay their $16.3 billion in collective bids for NextWave's spectrum.
Until Thursday. Responding to telcos' complaints that the potential liability of their in-limbo NextWave bids, combined with worsening economic circumstances, prevent them from raising money and could potentially lead to service deterioration, the FCC officially floated the idea of letting the frustrated new bidders off the hook.
That's where Cablevision comes in. Should the carriers be relieved of their NextWave obligations, they'd be free to bid on other less-encumbered spectrum, such as Northcoast's Boston and New York spectrum.
In a report published Thursday, Salomon Smith Barney cable analyst Niraj Gupta wrote that Boston and New York continue to be two of the most capacity-constrained wireless markets in the country, and a Northcoast acquisition appears to be the most efficient way of covering them. Gupta says the price Cablevision might reap ranges from about $500 million to $1 billion -- somewhere under $2.92 per share. Gupta rates Cablevision's prospects in line with his coverage universe; his firm has done recent investment banking for the company.
On Friday, Credit Suisse First Boston analyst Lara Warner called
the most likely buyer for Northcoast, since the company could be freed up from $8 billion in Nextwave-related bids, and had already bid $4 billion for spectrum in New York and Boston.
Theorizing a Verizon bid ranging from $500 million to $700 million, Warner says sale would likely boost Cablevision's stock 10% to 20%. She rates Cablevision an underperform, given the difficulties of closing the company's funding gap; CSFB hasn't done recent banking for Cablevision.