Time Warner Cable Inc (TWC), Cablevision Systems Corporation (CVC): How Cable Consolidation Can Enrich Your Portfolio

The cable industry appears to be ripe for consolidation, so what are some of the best ways to play mergers and acquisitions? Time Warner Cable Inc (NYSE:TWC) was up nearly 10% last week and Cablevision Systems Corporation (NYSE:CVC) spiked 3.5% on M&A speculation. The interest in cable companies also comes after the news that Gannett Co., Inc. (NYSE:GCI) announced plans to snatch up Dallas-based media company Belo; Gannett Co., Inc. (NYSE:GCI) was up some 30% on the news, and Belo popped 28%.

Media
General also agreed to buy New Young Broadcasting last week. Notable media analyst Tracy Young with Evercore Partners noted that “consolidation continues in the industry…at the end of the day there’ll be a handful of players.”

Other news in the industry includes the fact that Charter Communications, Inc. (NASDAQ:CHTR) could be looking to make a key acquisition. CNBC even reported that Time Warner Cable Inc (NYSE:TWC) might be looking to merge with Charter. The influx of streaming content from the likes of Netflix, Inc. (NASDAQ:NFLX) and Hulu, as well as HBO Go, has led to the need for conventional cable industry consolidation.

I think the consolidation is a welcomed catalyst for the industry. The merger and arbitrage market should remain robust going forward thanks to the loosening of the credit markets.

What’s next?

While I think one of the logical steps for both Time Warner and Cablevision Systems Corporation (NYSE:CVC) is for the two to merge, that could be easier said than done. With some $3.3 billion in cash, it would look as if Time Warner Cable Inc (NYSE:TWC) could make an acquisition play for Cablevision, which has a market cap of $4 billion. However, all of these major cable operators carry sizable debt loads. Accounting for Cablevision Systems Corporation (NYSE:CVC)’s debt and low cash, the enterprise value is upwards of $13.7 billion. A price tag that not even giant Comcast Corporation (NASDAQ:CMCSA) could cover with cash, having only about $4.7 billion in cash. But it makes more sense for Time Warner and Cablevision to band together via a merger to better combat Comcast Corporation (NASDAQ:CMCSA) and Charter.

Time Warner Cable Inc (NYSE:TWC) is expected to continue goring revenue nicely over the interim, with 5.5% growth in 2013, due to gains in primary service units thanks to bundled high-speed data services.

Time Warner is also planning to launch its TWC TV app on Samsung Smart TVs during the summer, which will allow customers to stream content directly to their TVs, avoiding he need for a cable box.