Subprime Havoc May Change Dolans’ Bid
Structure of Effort To Take Cablevision Private Examined
By Mike Farrell -- Multichannel News, 8/19/2007 8:00:00 PM
The meltdown in the subprime credit market could affect the Dolan family’s plans to take Cablevision Systems private, the company said in a securities filing last week.
The Dolans’ launched their $10.6 billion offer to take the Bethpage, N.Y., cable company private in May. As part of the deal, the family tapped investment bankers Merrill Lynch and Bear Stearns to provide up to $15 billion in financing to help fund the deal, as well as provide cash for future operations. But with the credit markets in turmoil, the Dolans’ said in a Securities and Exchange Commission filing Aug. 13 that the family is considering changes to the debt structure.
In the filing, Cablevision said that if current conditions persist in the credit markets, the family may have to pay higher interest costs and transaction fees for the debt. But it’s unclear whether that means that the Dolans will seek to find new or additional funding avenues, or just that they will have to dig deeper into their own pockets to pay those additional costs.
The road to privatization has become a bit bumpier since the Dolan family announced their offer in May. Although the family said it had the blessing of Cablevision’s special committee of independent directors for the deal, apparently getting a majority of the minority of shareholders to sign off on the transaction is not as easy as was previously thought.
Cablevision said in SEC filings that approval of the deal would require the OK of the majority of shareholders not affiliated with the Dolan family. But so far, no special shareholders meeting has been set — the company will only say that one is expected before the end of the year — and speculation has been that many shareholders are upset that they will not be able to participate in the biggest payday — Cablevision’s eventual sale — if they agree to the Dolans’ offer.
Also unclear is just how many shareholders must dissent to block the deal. Although Cablevision has said that it would require a majority of the non-Dolan family shareholders to allow the deal to go through, in merger documents filed with the SEC in May it states that one of the conditions of the deal is that “the total number of dissenting shares shall not exceed 10%.”
On the family’s side: Cablevision’s stock price has dropped dramatically in recent weeks — as have most of the other cable operators — due to the overall market decline and disappointing second-quarter results for all four of the major publicly traded cable companies.
Cablevision shares were priced at $32.92 each on Aug. 16, well below the Dolans’ offer of $36.26 per share.
That, said Sanford Bernstein cable and satellite analyst Craig Moffett, may be enough to get the non-Dolan shareholders on board.
“The probability that this deal would get approved, if and when it does come to a vote, has improved dramatically in the wake of the market rout,” Moffett said. “Right now, investors that two months ago would have turned up their nose at $36.26 would have a party to get a guaranteed $36 price for Cablevision. Nobody in this market is going to say no easily to an instant 10% return.”
Pali Capital media analyst Richard Greenfield wrote in a research report last week that while he believes the chances of deal approval are greater given the recent market volatility, he still thinks the company is worth more than what the Dolans are offering.
Greenfield, a longtime critic of the Dolans’ efforts to take the company private, said the market has overreacted to Cablevision’s decision to lower its full-year guidance on Aug. 8. Management said revenue and cash flow growth is now expected to be 11% and 10%, respectively, instead of the mid-teens percentage growth previously forecast.
But he also questioned the disparity between internal financial estimates released in its June proxy statement and its most recent guidance.
“Why would company projections related to the Dolan purchase differ from what is provided to public shareholders?” Greenfield asked in his report.
Greenfield attempted to get an answer to that question on Cablevision’s second-quarter analyst call on Aug. 8, but was rebuffed by the company, which is understandably limited in what it can say publicly about the privatization offer.
“As we stated before, we are not going to be able to have a discussion about that in today’s call,” Cablevision CEO James Dolan said in response to Greenfield’s questions on Aug. 8. “That will have to wait until the special shareholders meeting.”
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