Can U say Cablevision?

Debt-ridden cabler makes a bold play

The biggest surprise of Edgar Bronfman Jr.’s bid for Universal was the presence of Cablevision, the debt-laden New York cable company that can’t stop making headlines.

It was at war with the Yankees for months, sold Bravo to NBC and was briefly mentioned as a merger partner for DirecTV. Now, in its highest profile move to date, Cablevision has thrown in its lot with Bronfman in an offer for Universal Studios and Universal Music.

Cablevision would contribute its stake in three cable networks owned by subsid Rainbow Media (AMC, IFC and WE) in exchange for about 25% of a new, privately held entity Bronfman would run. Cablevision execs would not have a management role.

Yet even as Cablevision joins forces with Bronfman, sources close to the company say it is continuing to shop some of its Rainbow cable programming properties, including AMC.

Any sort of deal would invariably involve 20% Rainbow shareholder MGM, itself a dark horse bidder for Vivendi Universal Entertainment. The two parties conceivably could join forces; Cablevision could buy out MGM; or MGM could “tag along.”

The race for Viv U is quickly coming down to two central points: price and the ability to raise the necessary debt and equity financing from banks.

The bids from Bronfman and another led by Marvin Davis and Brian Mulligan will require that Viv U maintain an equity stake in the new business in order to avoid large capital gains tax liabilities.

More than stock?

Based on recent cable network sale valuations, AMC, IFC and WE could be worth up to $4 billion, or roughly 25% of a $16 billion bid for VUE. But if the new entity is worth $20 billion, Cablevision may have to contribute more than just the channels to reach 25% of the equity in the new company.

That possibility helped drive Cablevision shares down 3% Wednesday as investors fretted that the Dolans may be heading down a risky and potentially expensive new path.

“The good news here is that Cablevision is trying to realize the value of its programming assets, like they had with the Rainbow Media Group tracking stock in the past,” JPMorgan cable analyst Jason Bazinet said.

Uncertain, however, he said, is who will manage the business and whether an already fully leveraged Cablevision would be obliged to contribute cash or debt to meet its share of the bid.

Cable complications

A deal could also complicate the likelihood of Cablevision’s selling its cable systems to Time Warner Cable — a transaction that many expect once TW Cable goes public late this year.

Cablevision has significantly improved its balance sheet and share price in recent months, having sold off non-core assets to reduce its net debt to a more manageable $8 billion. But investors remain concerned that the company still has designs on moving forward with its risky and expensive Rainbow DBS satellite project, slated to launch later this summer.

(Jill Goldsmith contributed to this report.)

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