Cable-TV Firms Race to Merge in Drive for Profits, Markets

Cable television companies, taking advantage of favorable tax laws and a relaxed antitrust environment, are signing merger pacts at a record pace in an effort to boost profits and market share.

“I have predicted the top 25 (companies) will control 80% of the subscribers by 1990,” said J. Patrick Michaels Jr., chairman of Communications Equity Associates, a Tampa, Fla., investment bank specializing in media deals.

He predicts that his firm will do at least $1.5 billion in cable-TV transactions this year, and many analysts expect the industry to easily exceed the $10 billion in deals done last year.

“Everyone thinks 1988 is going to be a banner year,” said senior media analyst Sharon Armbrust of Paul Kagan Associates Inc. “The cable industry is having a boom.”

The October stock market crash put a damper on new deals and scuttled ongoing negotiations, but now cable-TV companies are looking for more targets with a vengeance.

Lull After Crash Ends

United Artists Communications, for instance, called off a tentative deal with United Cable Television a day after the crash on Black Monday. But the two came back on Wednesday to announce a cash-and-stock merger valued at about $1.6 billion, creating the nation’s third-largest cable concern.

Tele-Communications Inc., the largest cable-TV concern in the nation, will end up with 52% of the combined concern, exemplifying the trend of ever larger companies.

“We’re now at a stage where the major players with terrific cash flow see the opportunity to expand,” said Scott Marden, managing director at Bankers Trust New York Corp. in charge of media deals.

In addition, smaller companies, worried that the unprecedented prices being paid will peak soon, are rushing to sign transactions, ending the lull that occurred after the stock market crash.

The average price per subscriber, a key barometer of the market, stood at $1,743 last year, Armbrust said. But the demand by cable companies for acquisitions pushed the price to $2,294 in January.

Analysts said the wave of consolidation is being pushed by favorable tax laws, a relaxed antitrust environment, and relatively low interest rates.

Cable companies are seeking to increase their subscriber base and boost revenues, while their underlying costs for programming and equipment remain relatively stable.

“You’re adding households but you’re not adding to your fixed cost base,” Marden said. That translates into increased profits.

Over the past five years, smaller carriers combined to form regional cable concerns and they in turn formed national concerns.

Except for Storer Communications Inc., owned by leverage buyout specialist Kohlberg Kravis Roberts & Co., analysts see few big deals ahead. Rather, local private systems are expected to sell off properties to realize record prices.

“If people want to build their cable portfolios, they are going to have to move with medium-sized deals,” said Matti Prima, managing director of Henry Ansbacher Inc., an investment bank specializing in media properties.

TOP CABLE TV FIRMS If United artists’ move to buy United Cable TV succeeds, the combined firm would be the industry’s third biggest. These would then be the 10 largest U.S. cable companies. Source: Paul Kagan & Associates.

Subscribers Company (In millions) Tele-Communications Inc.* 5.50 American TV/communicatins 3.60 United Artists Entertainment 2.30 Continental Cablevision 2.10 Storer Cable 1.45 Cox Cable 1.40 Warner Cable 1.40 Comcast Cable 1.30 Newhouse Cable 1.10 Viacom 1.06

* Does not include its 52% stake in United Artists.