AOL Time Warner CEO Jerry Levin dashed the hopes of eager media deal-makers who have been salivating at the prospect of a marriage with Cablevision Systems Corp.
Levin, sharing the stage of Harlem's Apollo Theater with Chairman Steve Case in their first shareholder meeting together, dismissed the idea that AOL would buy the 30% stake in Cablevision held by AT&T Broadband. The telco unit is looking to unload most of that stake to pare the $28 billion debt it is currently slated to carry, which by itself cannot be supported by AT&T Broadband's anemic cash flow.
A joining of Cablevision and Time Warner Cable is Wall Street's idea of a subway series. Cablevison has systems serving 3 million subscribers in the New York suburbs and The Bronx. Time Warner Cable has the hole in the donut, more than a million subscribers in Manhattan and the other boroughs. That geography makes Levin and Case obvious potential buyers for the AT&T stake, particularly as one of the ways of unwinding its 74%/26% Time Warner Entertainment partnership with AT&T.
But Levin dismissed the $2 billion stake as "illiquid and passive," because the shares can't be publicly traded and it offers "no path to control" of the whole company. "We have not stepped up in any way," he said.
Levin said, somewhat wistfully, that he would love to someday buy Cablevision, partly because Chairman Charles Dolan started the operation—and founded HBO—with backing from Time Inc. "It would be a very interesting company to put all the cable systems in the New York area together."
AT&T Broadband definitely needs to sell. AT&T is loading that cable unit with leverage that, at current levels, would top 17 times cash flow. Asset sales could pare that to 9.9 times cash flow, and screaming cash-flow growth could take it down to eight times. Still, that's hugely leveraged in a world where cable operators strive for six times cash flow.