Rainbow rethinks cable

Suitors kick AMC, IFC tires

NEW YORK — Chuck Dolan has decided to spin off Rainbow Media into a separate company from Cablevision’s New York-based cable systems — but rumors persist that a major media conglomerate might come along to scoop up Rainbow’s AMC and its network siblings WE: Women’s Entertainment, IFC and Fuse.

Rainbow would stay public, while Cablevision would become private.

Cablevision’s Chuck and James Dolan said in a joint statement that spinning off Rainbow would “unlock the value of our premier programming, sports and entertainment properties,” thereby offering a substantial premium to shareholders.

Earlier this month, John Malone’s resignation from the Cablevision board unleashed a flood of reports that Malone’s Liberty Media was angling to buy Rainbow’s cable networks and merge them into the Discovery Networks (which are 50% owned by Liberty), creating a more powerful marketplace competitor.

Even though Malone denied the rumors, as did James Dolan, who will take charge of the spun-out Rainbow Media, Craig Moffett of Sanford Bernstein, reflecting an informal consensus, said that “buyers could emerge” for the Rainbow networks. Moffett mentioned all of the usual media-conglomerate suspects, and even added Comcast to the mix.

Comcast owns a controlling stake in QVC, E! Entertainment TV, Outdoor Life Network, G4 Channel and the Golf Channel.

The surprise announcement of the plan by Cablevision — the sixth-largest cable operator in the U.S. — caps months of speculation as to the future course of the company, which harvested reams of bad publicity earlier this year from a cutthroat family boardroom battle pitting father against son over the money-losing Voom satellite service.

Cablevision shut down the service, but is trying to keep the package of high-definition networks in distribution by clearing them on cable systems and on satcasters EchoStar and DirecTV.

One advantage of the Dolan blueprint is it will separate Chuck, who will run Cablevision, from James, who’ll have his hands full with Rainbow, which also includes the regional sports networks MSG and Fox Sports N.Y., the New York Knicks and the N.Y. Rangers, and Radio City Music Hall. (James is particularly fond of Rainbow’s sports properties.)

Although the parallels are not exact, some analysts compare the separation of Dolan pere and fils to Viacom’s awarding Tom Freston and Leslie Moonves their own companies to run within the corporation, resolving, for the time being, a potentially troublesome succession problem for the chairman and CEO of Viacom, Sumner Redstone.

Joining Chuck Dolan as chief executive of the private Cablevision will be Thomas Rutledge, who currently serves as chief operating officer of the company.

James Dolan has a longtime relationship with Bob and Harvey Weinstein. During the Cannes Film Festival, they announced that their temporarily named Weinstein Co. has sealed a relationship with Cablevision’s Rainbow Media that provides the Weinsteins with a fund to acquire titles for a homevideo and TV library. The Weinsteins’ new venture will also handle international sales for Rainbow’s theatrical-distribution entity IFC Films.

“This ‘pure play’ company will be well positioned for continued growth. We have long believed the value of these scarce assets was not fully reflected in Cablevision’s stock price, and will be more readily recognized in a stand-alone company,” Chuck and James Dolan said in a statement.

Taking the cable side private would foster an “entrepreneurial management perspective” free from the watchful, worried eye of the public markets, according to the Dolans.

But skeptics claim the move won’t work. Tom Eagan of Oppenheimer spoke for a number of analysts when he said that, in the long run, “Rainbow’s assets may not be viable as a separate stock.”

Eagan compares a stand-alone Rainbow unfavorably with giant collections of cable networks like NBC Universal (USA, Sci Fi Channel, MSNBC), Time Warner’s Turner Broadcasting (TNT, TBS, CNN), Viacom’s MTV Networks, Walt Disney (ESPN, Disney Channel, ABC Family) and News Corp. (Fox News Channel, FX, National Geographic Channel).

Going private has become a trend among large cable operators frustrated by lagging stock prices and the inability to take on debt without drawing the ire of Wall Street. In the last year alone, Cox Communication and Insight Communications decided to go private.

Vintage Research media analyst William Kidd said it’s no surprise why privacy would be tempting to the Dolans.

The Dolan family — which controls more than 70% of Cablevision — revealed its intentions in a letter delivered to the board over the weekend. 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 per share.

Combined value of $33.50 per share — a total of $7.9 billion — represented a 25% premium over the closing value of Cablevision’s shares on Friday. Cablevision’s shares jumped $5.31 or 20% to $32.18 Monday on the New York Stock Exchange.

In the letter to the board, the Dolans said they would not sell their stake in Cablevision. But Time Warner Cable is lurking in the wings, said Moffett, pointing out in a report that it would love to pick up Cablevision’s lucrative systems in the greater New York area, which reach about 3 million subscribers.

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