After focusing solely on the New York City area for the last decade, Cablevision Systems Corp. has leapfrogged 2,000 miles to the Rocky Mountains by agreeing to pay nearly $1.37 billion to buy Bresnan Communications.
Bresnan is a midsized cable television company with 1,300 employees, including 688 in Montana. Corporate headquarters are in Purchase, N.Y., but its 308,000 customers are Westerners living in Montana, Wyoming, Utah and Colorado.
Employees should see little change in the transition to Cablevision, according to Shawn Beqaj, Bresnan vice president of public affairs.
“The real value of our company remains our people. That’s what they were purchasing,” he said.
The sale is expected to be completed later this year or in early 2011.
“The Bresnan team has built an impressive cable business that performs well financially, and we look forward to working to enhance those systems further,” said James L. Dolan, Cablevision president and chief executive officer.
Cable industry analyst Mike Paxton of Scottsdale, Ariz., agreed that the Bresnan jobs are probably safe.
“There has never been a significant example of an acquisition or significant agreement where they went in and released a lot of employees or changed them,” Paxton said.
When asked if they had any reaction to the sale of the company, three employees on break at Bresnan’s headquarters at 1860 Monad Road in Billings said they were waiting for more information and weren’t allowed to talk anyway.
Bresnan sold for $4,400 per subscriber, Paxton said, which compares favorably to nearly $3,200 per subscriber four years ago when Comcast and Time Warner Cable purchased Adelphia.
“I was a little surprised it went that high,” he said. “But the (Bresnan) systems have been upgraded. Cablevision is looking 10 years in the future and thinking, ‘If we get in on their business, it’s only going to improve.’ ”
Forty-four percent of Bresnan’s customers live in Montana.
Cablevision’s Chief Operating Officer Tom Rutledge said his company doesn’t plan on raising Bresnan’s prices, which are similar to his company’s rates. However, in a teleconference Monday, Rutledge said Cablevision generates more than $450 per home per year while Bresnan’s cash flow is roughly $200 less.
Cablevision intends on increasing its market share by adding attractive services, including quickly introducing more high-definition television programming, Rutledge said.
For customers who are buying communication services piecemeal from several companies, Rutledge said Cablevision plans on introducing its “Triple Play” product: “Better TV, better data, better voice at lower prices than people are currently paying.”
Cablevision used to operate cable systems in 19 states, but sold them in the late 1990s. The company, based in the Long Island community of Bethpage, N.Y., is paying up to $400 million in cash, or about 30 percent down, and is borrowing about $1 billion to buy Bresnan. But Cablevision is buying Bresnan indirectly, through a newly created subsidiary. Also, the $1 billion debt is nonrecourse, meaning that it belongs to the subsidiary, not Cablevision.
B of A Merrill Lynch (formerly Bank of America and Merrill Lynch) and Citi are financing the debt.
Dozens of cable companies competed for Bresnan, Beqaj said. According to the Wall Street Journal, bidders included Charter Communications Inc., Suddenlink Communications and Liberty Media Corp., as well as private-equity companies.
Cable TV companies are awarded exclusive agreements to serve specific geographical areas in exchange for paying a franchise fee to the city. Cablevision will have to win approval from hundreds of cities to transfer Bresnan’s cable contracts.
City of Billings financial services director Pat Weber said the sale of Bresnan shouldn’t make any difference here.
“They still have to honor their contract,” Weber said.
By federal law, a city can charge a cable company no more than 5 percent of gross revenues, and Billings charges the maximum.
In 2007, Billings collected $890,569 from Bresnan. The following year, the Billings City Council renewed the cable franchise agreement for five years and now collects $1 million per year or more.
In 2005, Bresnan opened a regional operations center on Monad Road, but blew past its original employment goals and quickly outgrew the building. A year ago, Bresnan moved about 90 of its 425 Billings employees to another facility at 2727 Central Ave.
Minnesota native William “Bill” Bresnan was a cable TV pioneer who founded Bresnan Communications in 1984 and sold out 15 years later for $3.1 billion. Three years after the sale, Bill Bresnan started another cable venture in the Rocky Mountains with financing from Providence Equity Capital to pay $675 million for AT&T Broadband properties. With improvements, Bresnan has invested $1.3 billion in the Mountain West and is selling for $1.37 billion. Two major owners, Providence Equity and Quadrangle Group LLE, put Bresnan up for sale in March.
During tough economic times, Americans are trimming their entertainment spending. But Bresnan’s cash flow is good enough to continue to turn a profit if Cablevision can keep or expand on the existing subscribers, Paxton said.
“The demand for pay TV and Internet services just keeps going up,” he said.
But not all acquisitions work out.
Cablevision’s purchase two years ago of Long Island newspaper Newsday failed and Cablevision wrote off substantial losses on that deal, according to the Wall Street Journal.
Also, the phrase “long-term investment” is a relative term in today’s financial world.
“The next long-term investment is only as good as the next quarter’s or next year’s financials,” Paxton said.
Contact Jan Falstad at email@example.com or 657-1306.