Cablevision’s Dolan Family Propose $5 Billion Buyout
Cablevision stock has fallen amid a boardroom battle, failed takeover bid and DTV deployment behind rivals. The solution, the founding family argues, is a $5 billion deal to take the cable operator private. Cablevision’s Rainbow holdings would be spun off to existing shareholders, for an estimated total value to public shareholders of $7.9 billion. If Cablevision’s board accepts the Dolan family plan, as analysts expect, investors will get $21 per share in cash, and stock in its Rainbow Media programming unit. The shares are down about 1/2 over the past 5 years.
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Shareholders were pleased, bidding up company shares 19% to $32. The Dolan offer is worth $33.50, the family said in a statement. Bondholders weren’t enthused by the plan, which would increase Cablevision debt. The price of Cablevision notes due in 6 years fell 4%, said Egan-Jones Ratings Managing Dir. Sean Egan, who cut the corporate issuer rating to “B-plus” from “BB.”
A Cablevision bid for bankrupt rival Adelphia failed, bested by a Comcast/Time Warner $16.7 billion offer (CD April 22 p2). Then Cablevision decided to shut down its Voom HDTV satellite service, triggering a father-son boardroom rift (CD May2 p9).
Investors aren’t giving Cablevision credit for its growth, Charles and James Dolan said in a Sun. letter to the board. “We strongly believe that a long term, entrepreneurial management perspective - not constrained by the public markets” is best, Charles and James wrote. They're “willing to assume the risks of full ownership.”
“They're giving me the opportunity to get out,” said cable investor Morris Mark. “They own an undervalued asset, and now they're going to get a chance to own a lot more of it.” Both money manager Mark and debt analyst Jones don’t expect a public bidding process for Cablevision. The Dolans have long been rumored to want to sell the company, but at a higher price than a potential bidder such as Time Warner would pay. A Cablevision spokeswoman said the company isn’t commenting on the Dolan bid. The board is expected to form a committee to review the offer.
The Dolans would spend almost $5 billion to buy out investors, according to a person familiar with their plan who asked not to be identified. He said the Dolans don’t want to sell Cablevision. The family has lined up $6.8 billion in financing for the deal, the person noted.
Under the plan, Cablevision debt would rise 58% at year’s end to $12.5 billion from a previous forecast, UBS cable analyst Aryeh Bourkoff estimated. He has a “hold” rating on Cablevision debt. Jones, who cut his rating Mon., said: “Bondholders will get killed.”