Time Warner Cable Inc (TWC), Cablevision Systems Corporation (CVC): Hedge Fund Billionaire John Paulson Thinks These Companies Are Takeover Targets

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PAULSON & COHedge fund manager John Paulson has made a lot of money by correctly predicting the wave of mergers in the wireless industry. Paulson & Co. bought significant stakes in both Sprint Nextel Corporation (NYSE:S) and Leap Wireless International, Inc. (NASDAQ:LEAP) prior to their buyouts.

Now, Paulson sees another industry on the verge of consolidation: the cable business. Specifically, Paulson thinks that both Time Warner Cable Inc (NYSE:TWC) and Cablevision Systems Corporation (NYSE:CVC) could be acquired by Charter Communications, Inc. (NASDAQ:CHTR).

John Malone is the key

John Malone, the chairman of Liberty Media Corp (NASDAQ:LMCA), is the driving force behind any would-be consolidation. As I’ve written previously, Malone would like to see the industry reduce itself to fewer players, likely for the purpose of greater leverage when it comes to content cost negotiations.

But, will Malone be able to pull it off? Paulson seems to think so. At CNBC’s Delivering Alpha conference on Wednesday, he mentioned it as the next potential industry to consolidate.

And Paulson has put his money where his mouth is. As of his firm’s last filing, Paulson owned nearly 17 million shares of Cablevision Systems Corporation (NYSE:CVC) (up 37% from the prior filing). He owned no shares of Time Warner Cable Inc (NYSE:TWC), but interested investors should definitely check the next 13F for a stake in the cable provider.

Cablevision is a more likely target

Of course, it makes sense that Paulson owns a stake in Cablevision Systems Corporation (NYSE:CVC) and not Time Warner Cable Inc (NYSE:TWC). He argued that Cablevision Systems Corporation (NYSE:CVC) would be an easier takeover target due its smaller size. Cablevision Systems Corporation (NYSE:CVC) has a market cap of just over $5 billion, less than one-sixth of Time Warner’s $34 billion.

That poses a challenge for Charter Communications, Inc. (NASDAQ:CHTR), which has a market cap less than half of Time Warner Cable Inc (NYSE:TWC)’s. A deal could likely be done with enough leverage, but it would certainly be easier to buy the smaller Cablevision Systems Corporation (NYSE:CVC).

To be fair, there are still challenges with a Cablevision acquisition. Specifically, as Paulson noted, Cablevision is a family-owned business. Members of the Dolan family run and control the firm, if they don’t want to sell, a deal won’t get done.

Could Charter be acquired?

But, so far, all the reports have pointed to Time Warner as the company that’s about to get purchased. In fact, Bloomberg reported Friday that Charter Communications, Inc. (NASDAQ:CHTR) is working with Goldman Sachs to put together the financing for a deal.

But, could the purchase go the other way? As speculation of a forthcoming merger has intensified, the bonds of Time Warner Cable Inc (NYSE:TWC) have sold off. If Charter Communications, Inc. (NASDAQ:CHTR) purchased Time Warner, the resulting entity would be loaded with debt, perhaps as much as $60 billion.

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