Shift to Cablevision split ditched
NEW YORK — The Dolans on Tuesday nixed plans to take family-owned Cablevision private, derailing a move to split the company in two and sending the stock into a tailspin.
Chairman Charles Dolan and his son, CEO James Dolan, said they had withdrawn their June 19 proposal to the board to personally acquire Cablevision’s cable and telecom operations and spin off its programming, sports and entertainment assets into a new publicly traded Rainbow Media.
“Despite good-faith negotiations over the past four months, it has become clear that we will be unable to reach agreement with the special transaction committee on the terms of our proposal,” Charles and James Dolan wrote in a letter to Cablevision’s board of directors.
Rainbow includes cable networks AMC, IFC and WE, regional sports nets, Madison Square Garden and the sports teams that play there. Wall Street generally likes split-ups these days and figured the assets on their own were ripe to be acquired by another media company.
Analysts who follow the company said Tuesday they still expect both the cable systems and the content business to be sold. A sale of music net Fuse could be imminent with the Weinstein Co.’s financing now in place. “New” cable-centric Viacom, to be created when the conglom splits in half late this year, would be a logical buyer of AMC or IFC.
Time Warner is still considered the likeliest acquirer of the cable systems, which have about 3 million subscribers clustered mainly in the New York suburbs — a perfect fit with TW’s New York City footprint. Cablevision’s cable systems are considered among the best run in the U.S., with high revenue per subscriber and a strong leader in Tom Rutledge.
In their letter, the Dolans also recommended the board consider a special $3 billion cash dividend to shareholders — likely a gesture to mollify investors after reneging on the split.
The board said Tuesday that it is considering the proposal.
Nevertheless, Oppenheimer analyst Thomas Eagan expressed doubt that “the Dolan family expected that the board would approve the dividend,” since it would sharply increase the company’s debt load.
Shares plunged 12.91% Tuesday to close at $24.21. After a spike in June, they’ve been on the skids since late summer.
Eagan called the sell-off a buying opportunity. Fulcrum Global Partners analyst Richard Greenfield also has a buy on the stock “despite frustration with the Dolans.” He sees the company as a seller of assets and thinks the Dolans could try again to take it private, given the sharp dip in Cablevision’s share price. “Could this all be part of the Dolans’ negotiating process?” he wrote in a note to clients.
Basically, the Dolans appeared to be unwilling to pony up enough cash to buy out shares owned by public stockholders. In June they offered to pay $21 a share for stock they didn’t own, plus shares of the new Rainbow spinoff. The transaction committee created after the Dolans’ offer is said to have wanted at least $2 a share more.
To finance the buyout, the Dolans had planned to borrow $8 billion, which would have made Cablevision one of the most indebted cablers in the industry.
James Dolan was to run Rainbow, with Charles overseeing the cable and telecom side. Move to split was also seen partly as a way to separate the feuding father and son, who battled for months early this year over the future of high-definition service Voom. After a high-profile clash, James, with the board on his side, won out and Voom was largely shuttered.
Relations between the two may have improved, however. James underwent bypass surgery last weekend and, the company said, is expected to make a full recovery.
“We look forward to continuing to work with one another, and with employees throughout the company, to build the value of Cablevision’s assets,” the two men wrote in their letter.
Another issue is that while cable stocks have dipped, competitive pressures from telcos have heated up. Cablevision may have more clout with cable systems and programming under one roof.