NEW YORK — Cablevision Systems has been slapped with a shareholder lawsuit over the Dolan family’s plan to take the cable side of their biz private and spin off programming arm Rainbow Media into a publicly traded company.
The shareholder, Penn Capital Management, alleged the Cablevision board is breaching its fiduciary duty by not allowing potential bidders for the cable assets to participate in the process.
In the past, Time Warner Cable has made it clear it might make a play for Cablevision’s cable biz should the Dolan family ever put it up for sale.
Penn Capital’s lawsuit said the Dolans’ plan was designed to solve a bitter boardroom battle between Charles and James Dolan, as opposed to what is in the best interest of shareholders.
Charles Dolan is slated to run the private cable company, while James Dolan would head up Rainbow Media Holdings, the new public company.
Rainbow Media Holdings would house Rainbow’s stable of cable nets, which include AMC and IFC, as well as Cablevision’s sports and entertainment properties, including Madison Square Garden and Radio City Music Hall.
The Cablevision board has tapped Lehman Bros. and Morgan Stanley to advise on the proposed breakup.
Under the $7.9 billion deal, Cablevision stockholders would get $21 in cash for each share they own, plus shares in the new Rainbow Holdings, valued at $12.50 a share.
Cablevision said it had no comment on the lawsuit.
Penn Capital — which owns less than 0.05% of stock in Cablevision — also is asking the court to place recent bonuses awarded to Charles and James Dolan in a special trust.
Earlier this month, the Cablevision board said that both Dolans were each receiving a deferred bonus of $2.8 million from 2002, when the cabler was strapped for cash.
Cablevision shares dropped 1¢ in trading Tuesday to close at $30.80.
(Wire services contributed to this report.)