Cable One, the Phoenix-based cable arm of Graham Holdings, is slated to begin when-issued trading on the New York Stock Exchange on June 11, giving investors some insight into what Wall Street really thinks about small-market MSOs.
Graham Holdings announced plans to spin off Cable One in November, and the stock will officially trade on NYSE (under the symbol “CABO) on July 1. But in the meantime, investors will get an early glimpse of how the market could value the company via when–issued trading under the symbol “CABO WI.”
According to some people in the cable financial community, some investment bankers estimate the market could value Cable One as high as 8 times to 8.5 times forward looking cash flow. That would be a pretty high public multiple -- other cable stocks trade in the 7 times range -- but would be in line with the 8 times to 10 times multiples paid for public and private cable companies recently.
When-issued shares can be bought or sold like ordinary securities, except that transactions do not settle until the stock is formally issued. The attraction: trading in when-issued shares usually require a small down payment of about 25% of the value of the shares and no margin or loan debt is needed for the balance until the settlement date, which can be weeks in the future.
Cable One has been at the forefront of the battle over high-programming costs, dropping Viacom’s suite of networks – including MTV, Comedy Central, Nickelodeon and VH1 – 14 months ago after the two could not reach a carriage deal. Cable One has claimed that Viacom demanded carriage fee increases of more than 100% despite ratings declines at many of its channels. Viacom has claimed it is merely seeking fair compensation for its content.
Dropping Viacom has taken a chunk out of Cable One’s programing expenses. According to its financial statements, programming costs have dropped “significantly” since it dropped Viacom more than a year ago, but so have its customer rolls. Graham’s 10-Q first quarter financial statement filed in May stated that Cable One has shed about 20% of its video customer base (to 421,331 from 524,563 in March 2014) in the past 12 months and has placed a lower emphasis on video product sales.
“Due to rapidly rising programming costs and shrinking margins, video sales now have less value and emphasis (video PSUs were down 20% over the first quarter of last year) and programming costs have been reduced significantly,” Cable One said in the 10-Q. The company added it is focusing more on “higher lifetime value customers who are less attracted by discounting, require less support and churn less.”
The spin will be a tax-free distribution to Graham shareholders of record as of June 15, who will receive one share of Cable One stock for every Class A and Class B Graham Holdings share they own. Earlier in June, Graham announced that Cable One also will issue about $550 million in debt, which will be used to pay a one-time cash dividend to Graham Holdings.
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