Cablevision Systems said June 14 that it paid $1.365 billion for Bresnan Communications, a cable operator with 300,000 subscribers in Colorado, Montana, Wyoming and Utah.
Reports of the acquisition helped push Cablevision shares open down 79 cents to $22.61, because some investors had hoped that the Dolan family, which controls the company, would stop making expensive acquisitions and start focusing more on returning value to shareholders. The stock bounced back later in the morning, trading at 23.76, up 36 cents.
Shareholders did get some good news: Cablevision's board of directors approved a $500 million stock repurchase program.
"Put simply, this is not what investors had in mind," said Craig Moffett, senior analyst at Sanford C. Bernstein & Co. "The repurchase program is a welcome development, though investors will inevitably be frustrated by the decision to buy Bresnan at 8.3 [times earnings] instead of using the same amount of financial firepower to acquire more of Cablevision itself at well under 7 [times earnings]."
Moffett added that the acquisition might also be seen as a signal that the Dolans have no plan to sell Cablevision any time soon.
In a statement, Cablevision President and CEO James L. Dolan said, "We believe the acquisition of Bresnan is an excellent opportunity to leverage Cablevision's strong management team and build shareholder value."
Cablevision is among the best-run cable operators from a financial point of view, and its chief operating officer, Tom Rutledge will oversee the Bresnan systems.
"We look forward to building on Bresnan's record by pursuing among other things: broader deployment of digital voice; the addition of more high-definition television offerings; the expansion of our groundbreaking Triple Play offer; and, the rollout of new services that have already shown great promise," said Mr. Rutledge.
Cablevision said it expects that Bresnan will be acquired by a newly formed, unrestricted subsidiary of Cablevision. The subsidiary is expected to be financed using non-recourse debt of approximately $1 billion and an equity investment by Cablevision of less than $400 million. A closing is expected later this year or early in 2011, subject to regulatory approval.
Mr. Dolan said the stock buyback program, along with the company's dividend, were intended to increase shareholder value.
"In addition, we believe that the repurchase program will help to better align the market value of the company's common stock with Cablevision's underlying operating performance."
