Street thinks bid is too low
NEW YORK — Cablevision shares shot higher Monday on the Dolan family’s latest bid to take the company private, although Wall Streeters figure the $27 a share offer is too low.
Stock jumped nearly 11% to close at $26.42 as several analysts predicted the family will raise its bid, or that other cablers could jump in with rival offers. Time Warner, for instance, has long coveted the Bethpage, N.Y., company whose suburban New York systems are a perfect complement to Time Warner Cable’s Gotham footprint.
Prudential analyst Katherine Styponias noted that the Dolans’ offer reps only a 10.5% premium to the family’s previous attempt to take the company private in 2005, while cable stocks have risen about 40% during that time. The companies have had enormous success rolling out the so-called “triple play” of video, voice and data, and Cablevision is considered among the nation’s best.
The family, led by Cablevision chairman Chuck Dolan and his CEO son, James, will have to take on heavy debt to do the deal. Citigroup’s Jason Bazinet estimated they could pay up to $30.10 a share max.
He thinks the company is worth $32-$33 a share in a sale. Trouble is, hopeful outside buyers have been stymied by the fact that the Dolans own 77% of Cablevision’s voting stock and can reject any offer. However, all overtures would technically have to go through a special committee set up by the board.
Still, the enormous financial commitment required by the Dolans “is a positive signal for the health of the cable business,” Styponias said, since it implies management’s confidence in continued strong growth.
The Dolans said their proposal represents a 17% premium to the company’s share price over the past two weeks. Offer values Cablevision’s equity at $7.9 billion and implies an enterprise value of $19.2 billion.
In a letter to the board of directors sent Sunday, Chuck and James Dolan said their proposal took into account feedback by directors after the family’s 2005 attempt to take the cable side of the business private. A special committee had rejected that offer.
Cablevision also owns Rainbow Media, which includes the IFC, AMC and WE cable nets, Madison Square Garden, New York’s Knicks and Rangers and Radio City Music Hall.
In its letter, the family said it fears that the high level of investment required to fortify its cable business could put the company at odds with Wall Street’s focus on quarterly results.
“We believe strongly that responding to the intensifying competition in our industry and the risk of new entrants will require a long-term, entrepreneurial management perspective that is not constrained by the constant focus on short-term results demanded by the private equity markets,” the Dolans said in their letter.
“We are convinced that private ownership is highly desirable, and we are willing to assume the risks of full ownership and additional leverage to ensure that Cablevision has the structure and flexibility it needs to continue to succeed and grow.”
The Dolans would finance the transaction in part by investing all of their shares, worth about $1.7 billion. They have commitments from Merrill Lynch and Bear Stearns with respect to the debt financing. The Dolans said they will need about $10.7 billion total to complete the deal, including the refinancing of existing credit facilities.