Dolans’ $3 Billion Cablevision Dividend Proposal Panned
A dividend proposal by the Dolan family, which killed a plan to buy Cablevision, was panned by analysts wary of seeing the company’s debt load rise. Four months after the Dolans offered to buy the firm’s cable unit for $5 billion, the deal disintegrated after a special board committee and the Dolans couldn’t agree on a price. Release of a letter from the clan to Cablevision’s board scuttling the takeover sent the firm’s shares tumbling 13%.
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With the sale scotched, Charles and James Dolan said the firm should pay investors, including the family, $3 billion. Cash for such a payout likely would come from selling bonds or other debt securities, a source said. One top-ranked cable analyst vented at the Dolans with the headline, “He Whom the Gods Wish to Destroy, They First Drive Mad.” The analyst, Janco’s Matt Harrigan, wrote in a research note that the dividend is “ill-advised with… Verizon moving to deploy fiber in Cablevision areas.” Analysts at 2 debt rating firms, including Moody’s Investors Services, also criticized the proposal.
“It’s gigantic, particularly given the company’s weak financial condition,” said Egan-Jones managing director Sean Egan. “A $3 billion dividend has a high potential to generate a downgrade” of Cablevision’s credit rating, already below investment grade, said Christina Padgett, senior credit officer at Moody’s. “You might argue that this is the right time to [cut debt] because the competitive environment is becoming more intense. But, that said, operationally you've have to credit Cablevision with being a very strong player.”
The Dolans cited declining cable values in nixing the deal. Since the family’s unveiling of its bid, Cablevision shares and those of rivals including Comcast had fallen more than 10% before Tues. But some see brighter days. “I think the Dolans think the cable operations are worth a lot more than they are getting credit for in the marketplace, and I still think it’s likely that they [will] sell it to Time Warner,” said Invesco money manager Mark Greenberg. “Why not put it up for auction, and if someone is willing to pay more, then let them pay more?”