Cablevision empire may need a breakup

Dolan family feels heat with co. staring at money woes

NEW YORK — Struggling cable-to-movie theater group Cablevision Systems Corp. may be the next casualty on the growing list of cash-strapped media firms in need of financial intensive care.

The debt-encumbered company was once considered a prime cable consolidation candidate, but its heavy debt load and stagnating revenues are putting increasing pressure on the firm to do some spring cleaning.

Credit Suisse First Boston analyst Lara Warner alerted investors Monday to a possible $550 million funding shortfall for 2003 if Cablevision doesn’t sell off or shut down at least some of its non-core assets.

Fortunately, the Long Island-based company has plenty to choose from.

In addition to its 3 million sub New York area cable franchises, Cablevision’s diverse collection of businesses includes the 59-screen Clearview Cinema chain, the Wiz consumer electronics stories and cable programmer Rainbow Media (IFC, Bravo, AMC et al). Company also owns venues Radio City Music Hall and Madison Square Garden, along with sports teams the New York Knicks, Liberty and Rangers.

But this unwieldy collection of New York area businesses has confounded easy valuation and made a takeover bid unlikely. The Dolan family owns 26% of the company and maintains voting control with a special class of stock.

Cash shortage

The company (the sixth largest among U.S. cablers) was the last major operator to start upgrading its plant to digital, and is now suffering a continued cash drain from what should be cash-rich cable subscribers.

As a result, it’s struggling to keep pace with debt interest payments on $7 billion in long-term debt. Revenues in 2001 were $4.4 billion, with an operating loss of $258 million.

Come December, Cablevision may also be obliged to buy out Fox Entertainment Group’s minority shareholding in Fox Sports Net regional networks for $1 billion over three years.

Analysts say the sum of Cablevision’s parts are likely worth between $7 and $9 billion, just enough to cover its debt obligations.

Money-losing music and electronics chain the Wiz is considered the likely target to be sold or shut down.

Cablevision sources refused to comment on the break-up speculation and won’t discuss financial issues prior to its earnings announcement Aug. 8.

Investors have soured on the stock over the past few months: Its share price has plummeted more than 80% over the past year, and the company has so far resisted investor pressure to monetize assets to reduce debt.

Rating upgraded

While CSFB upgraded its rating on Cablevision from “hold” to “buy” in anticipation of a cash sale that will speed up profitability, Morgan Stanley last week cut its own price target for Cablevision from $38 to $25 over concerns about debt load relative to cash flow.

Finally, some investors are concerned that Cablevision subscriber numbers may be falling. The Gotham cabler is a notorious renegade when it comes to negotiating programming carriage deals and its refusal so far to carry Yankees Entertainment & Sports Network on its systems remains a local bone of contention.

Cablevision has resisted the Yankees insistence (met by Time Warner Cable) that YES baseball games be carried on the basic tier.

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