Time Warner Cable Expands Reach with Navisite Deal

March 8th, 2011 by Trefis Team
-3.12%
Downside
210
Market
203
Trefis
TWC: Time Warner Cable logo
TWC
Time Warner Cable

Time Warner Cable (NYSE:TWC) competes with satellite pay-TV providers like Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV), cable companies like Comcast (NASDAQ:CMCSA), and telecom operators like AT&T (NYSE:T) and Verizon (NYSE:VZ). Our price estimate for Time Warner Cable stands at $68.14, which implies a roughly 5% discount to market price.

While on one front, the company has been enacting initiatives to strengthen its pay-TV business, it is also starting to focus more on its business customers. Along these lines, Time Warner Cable recently announced an acquisition of NaviSite, which is a provider of enterprise-class hosting, managed application, messaging and cloud services.

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Navisite Deal at a Glance

Time Warner Cable has decided to buy Navisite at a price of $5.5 per share, amounting to a total value of roughly $230 million. This suggest a 33% premium to market price for Navisite. [1] Time Warner Cable will not be operating Navisite as a separate subsidiary. [2]

Navisite has about 1,400 customers worldwide that are spread across several industries, and generated $126 million in revenues during its fiscal year 2010. [3] The company’s services include managed hosting services like SaaS, server and storage management, data protection, managed application services and managed cloud services.

These Deals Are Becoming a Trend

This is not the first time a carrier has made such an acquisition. Verizon recently acquired Terremark and AT&T previously acquired USi. Lydia Leong from Gartner points out large carriers seeking growth will likely pursue the businesses of hosting and cloud services [2] However, she also notes that this is probably the first time a cable operator has done so. We’ll have to wait and see how this move turns out. Many of these types of acquisitions in the past have not been successful. [2]

Time Warner Cable Wants  a Better Hold of Business Customers

Cloud and storage services are becoming increasingly important as businesses look to move more of their applications over to the cloud in order to cut costs on managing in-house servers and applications. This should be a lucrative field for the network service providers given its high expected growth. Deals in this space provide an opportunity for companies like Time Warner Cable to entice business customers as IT spending improves alongside economic recovery.

When it comes to high-speed data, commercial customers form a mere 3.3% of Time Warner Cable’s subscriber base, indicating potential to expand. The inclusion of services offered by Navisite could be a step in this direction.

See our full analysis and $68.14 price estimate for Time Warner Cable

Notes:
  1. Time Warner Cable to Acquire NaviSite, Inc., Time Warner Cable Press Release, Feb 1 2011 [↩]
  2. Time Warner Cable acquires NaviSite, Gartner Blogs, Feb 1 2011 [↩] [↩] [↩]
  3. Navisite’s official website [↩]