Time Warner Cable Inc (TWC) Shouldn’t Give in to John Malone

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Cablevision Systems Corporation (NYSE:CVC), of which the Dolan family owns a 72.9% stake, has more than 3.2 million subscribers in the New York region. That would be the right fit for Time Warner’s New York systems. The Dolan family-controlled company enjoys a high-income subscriber base.

Todd Mitchell, an analyst at Brean Murray, says that Time Warner and Cablevision Systems Corporation (NYSE:CVC) have neighboring cable systems. And more importantly, their markets don’t overlap, so there are unlikely to be any regulatory issues in the deal.

Yes, I know the Dolan family hasn’t shown any interest in selling its stake. But now their company is facing fierce competition from Verizon in its strongest markets including New Jersey, Long Island and Connecticut. Cablevision is losing video customers, and its cash flow continues to decline. Sources told Reuters that after witnessing this scenario, Cablevision’s 86-year old founder Chuck Dolan may be more in the selling mood now. Cablevision is still a valuable asset that interests Time Warner.

Bottom line

Time Warner Cable Inc (NYSE:TWC) shareholders have been frustrated with its sluggish growth. But accepting John Malone’s offer isn’t going to enhance shareholder value because it will put a large amount of debt on the merged company’s balance sheet. And the company management realizes this fact. It would be better off leading the consolidation wave by acquiring companies that offer great synergies.

The article Time Warner Cable Shouldn’t Give in to John Malone originally appeared on Fool.com and is written by Vikas Shukla.

Vikas Shukla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vikas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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