Dolans Giving Cablevision More Time
Second Extension For Privacy-Bid Deal Deadline
By Mike Farrell -- Multichannel News, 12/17/2006 7:00:00 PM
Cablevision Systems' ruling Dolan family has again extended the deadline for the company to approve its funding commitment agreements tied to the $7.9 billion bid by the family to take the cable company private, a move that could signal the family thinks a deal might not be done this year.
This is the second extension granted by the Dolans since the family members launched their going-private bid in October.
The family first set Nov. 10 as the deadline, extending it to Dec. 8 in a filing with the Securities and Exchange Commission on Nov. 13.
In an SEC filing Dec. 11, the Dolans said that they will extend the deadline for accepting the funding plan to Jan. 12.
LINING UP FUNDS
The Dolans said in November that they have secured funding commitments from Merrill Lynch and Bear Stearns for about $10.9 billion through a series of term loans, revolving credit facilities and high-yield debt.
The money will be used to fund the Dolans' $7.9 billion bid to acquire the remaining Cablevision stock family members don't already own, and to refinance some of the company's debt.
The Dolans have said they would also assume about $11.3 billion in Cablevision debt, bringing the total value of the offer to about $19.2 billion.
On Oct. 9, Cablevision named two independent directors — Thomas Reifenheiser and U.S. Navy (Ret.) Vice Admiral John Ryan — to head up a special transaction committee to evaluate the proposal.
The Dolan family launched their second bid to take the cable company private on Oct. 8. Their first attempt at privatization was scrapped last year, in favor of a $3 billion special dividend issued to all shareholders.
But the initial bid of $27 per share — a 19% premium to Cablevision's share price at the time — most likely will have to be raised. Cablevision stock was trading at $28.41 on Dec. 13, well above the initial bid price.
While some analysts have said the Dolans will have to raise their price, most have set a $30-per-share ceiling on the family's bid, citing leverage concerns.
Hampering the Dolans' bid are debt-covenant restrictions that set a ceiling of 9 times cash flow for its overall leverage. Upping the bid by more than $2 per share would send Cablevision's leverage ratio in the 9.7 times range, according to some analysts.
But the Dolans have alternatives to taking on more debt to finance a higher bid. The family could sell off some assets — particularly its Rainbow Media Holdings cable channels — or could take on an equity partner.
Rainbow Media, consisting of cable channels AMC, IFC and WE: Women's Entertainment as well as its sports arenas and teams, could fetch more than $5 billion.
Many analysts believe the Dolans would wait until taking the company private before selling Rainbow.
The other option — taking on an equity partner — could be attractive as long as that partner doesn't ask for too much control.
Janco Partners analyst Matt Harrigan said that while taking on an equity partner is a possibility, it is not the ideal situation for the Dolan family.
“If I was the Dolans, I would think they would try to work around this,” Harrigan said. “I would rather do something with Rainbow than take on a private-equity partner and dismember some of the upside. They could do that but at some point it defeats the purpose.”
Harrigan said the biggest hurdle to a deal for the Dolans has been the stock market in general. Investors have looked favorably on cable companies this year as voice product rollouts have gone better than expected and the threat of telephone companies moving into the video market has been minimal at best.
“The market is really working against them,” Harrigan said.
Given that Comcast stock closed Dec. 13 at $42.86 — up 63% ($16.63) since the beginning of the year — Harrigan said the special committee would be hard-pressed to approve the deal as it stands.
But while Cablevision's stock is up 19% ($4.66) since the Dolans announced their intentions on Oct. 8, Harrigan said the offer may have served to actually hamper appreciation of Cablevision shares.
“You could make a perverse argument that the stock would be at least where it is or higher, given where Comcast is,” Harrigan said. “You could make a perverse argument that the deal's put a cap on it.”
Harrigan, who has a 12-month price target on Cablevision shares of about $31, said that stock price “could easily get into the mid-$30 [per share range] if you don't allow for the hair on this thing.”
Harrigan said that given the volatility of the stock, it is likely that the Dolans won't hear from the special committee until mid-January.
“Needless to say, this is going to extend into next year for bids,” Harrigan said. “I don't think there is that much of an imperative to get it done this year.”
COULD HAPPEN THIS YEAR
UBS Securities cable debt and equity analyst Aryeh Bourkoff said that despite the extensions, he thinks a deal could ultimately be done before the end of the year.
“Knowing the Dolans and Cablevision, I would think this would happen either on Christmas or New Year's,” Bourkoff said.
Bourkoff said that the extensions don't necessarily have to do with potential snags in the negotiations between the Dolan family and Cablevision.
“The banks extend until they don't,” Bourkoff said. “The ultimate decision lies in the hands of the independent committee.”
But he said final deal terms will likely be altered to accommodate a higher share price. Bourkoff recently increased his price target on Cablevision to $29 from $27.
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