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Inside Wall Street
A CABLE-TV DEAL MAY SPARK UP HOUSTON'S UTILITY
Shares of Houston Industries, a diversified company that owns Houston Lighting & Power, have been on the skids this year. Among other concerns, the Street fears its hefty dividend will be cut. But value players are snapping up shares, betting that Houston is close to signing a deal on its cable operations--probably with Time Warner. Such a pact, say these pros, would surely rekindle the Street's ardor for Houston.
The company announced in November that it wanted to sell 50% of its KBL Cable unit, which provides service to nearly 1 million subscribers in California, Minnesota, Oregon, and Texas. Houston's other cable unit--KBL Communications--owns a 50% stake in Paragon Communications, which is also 50% held by Time Warner. Paragon has 900,000 customers in parts of seven states, including upper Manhattan in New York and Orange County in California.
A New York money manager says Houston executives have had lengthy talks with Time Warner, as well as with some of the regional Bells. He says a deal to sell or merge KBL Cable with Paragon is the one Houston is most likely to opt for. A Houston spokesman says the company will definitely stay in cable TV but won't comment on the result of talks with possible "strategic partners." A Time Warner spokesman declined comment .
NUCLEAR DAMAGES. The money-losing KBL Cable is expected to break even or post a modest profit this year, after a $13 million loss last year on revenues of $24 million. This pro puts the value of 50% of KBL Cable at $1.5 billion. Depending on how the deal is formed--a sale or a merger--the added value per share could be $7 to $10, says the money manager. So he figures the stock, now at 33, is worth at least 45. It traded as high as 49 in 1993.
Doris Kelley, an analyst at Merrill Lynch, is convinced that "any cable business sale, depending on its structure, could result in substantial enhancement of Houston shareholder value." A sale could bring in cash to pay off debt and improve earnings. The analyst says the stock is under pressure because of regulatory concerns and problems arising from temporary outages in 1993 at its partially owned South Texas Project nuclear plant.
Without a deal, analysts expect Houston's earnings this year and next to be about the same as last year's $3.20 a share.GENE G. MARCIAL