Tight Money

This summer giant private-equity firm The Carlyle Group postponed its proposed sale of Insight Communications due to turmoil in the credit markets that made loans for acquisitions scarce and costly. It has also apparently shelved a reported $20 billion buyout of U.K. cable company, Virgin Media. We spoke to Oppenheimer & Co. cable and satellite analyst Tom Eagan about how tight credit markets have put the brakes on mergers and acquisitions in the cable industry.

Was it purely the state of the credit markets that caused Carlyle to pull back on the Insight sale, or was it just a case of bidders did not meeting the firm’s price?

Thomas Eagan: I don’t think it’s about [price], it’s more about the markets. I think that it makes sense to delay it, because you’re going to get better, broader interest [when credit markets improve].

In terms of more bidders?

Thomas Eagan: More bidders, without question, and you’re going to get better interest, in terms of a higher price, when they don’t feel as constrained by debt financing costs.

How long do you think it’s going to take for the credit markets to calm down and clear the way for further cable consolidation?

Thomas Eagan: It’s the $10,000 question. It’s really hard to say. I think that, for example, Carlyle’s interest in Virgin Media—they’ve shown interest in that company repeatedly. They’ve shown interest in cable businesses repeatedly. We wouldn’t be surprised if in early to mid-’08 that we see [cable acquisitions] resurface.

Is the ultimate buyer of Insight likely to be another cable company like Time Warner or another private equity firm like Blackstone or KKR, both of which reportedly floated a buyout of Virgin Media last year?

Thomas Eagan: I think it will probably be a strategic acquisition by another cable operator. They have systems, like the ones in Indiana, which would be of interest strategically to a Time Warner.

Do you see the credit market turmoil impacting the larger operators that are trying to build scale to compete with the telcos?

Thomas Eagan: I’m not sure. Time Warner and Comcast already have such scale, especially Comcast. As you probably know, the real competitors [are satellite]. Verizon’s FiOS will be a competitor, but AT&T’s U-verse really isn’t at this point. And FiOS is really competitive with Cablevision only. The exposure of Time Warner and Comcast to a FiOS triple play is very, very small at this point.

You see the credit market problems as just a temporary hurdle in cable acquisitions, like Insight’s, that will clear up in the near term?

Thomas Eagan: Yes. And if it doesn’t that doesn’t mean that [Insight] won’t get sold. They’re just looking for a better opportunity. So if that doesn’t materialize in the next, say, nine months, they’re still probably going ahead anyway. They’re just waiting for their opportunity. If the credit market doesn’t change, that doesn’t mean that it isn’t going to happen.

Are there other cable acquisitions you think would be in progress now if not for the troubled credit markets?

Thomas Eagan: The only ones we expect to happen would be, say, selected systems at Charter that they feel are not strategic. I would imagine that over time we would see some more sales there.

Rob Garretson is a business and technology writer based in Gaithersburg, Md.