Cablevision Eyeing Rainbow Sale?

Report Says Cable Company Hired Bear Stearns To Explore Options

By Mike Farrell -- Multichannel News, 2/25/2008 9:41:00 AM

Cablevision Systems shares fell slightly Monday after reports that the Bethpage, N.Y.-based cable operator was exploring alternatives to increase shareholder value, including the possible sale of its Rainbow Media Holdings programming unit.

According to the New York Post, Cablevision has enlisted the help of investment banker Bear Stearns to assist it in exploring those alternatives.

Cablevision stock was down 82 cents each (2.9%) in early trading Monday to $27.10 per share.

The news comes less than one week before Cablevision is slated to report its fourth quarter earnings (on Feb. 28) and comes about six months after the company’s ruling Dolan family failed in its third attempt to take the company private in October.

According to the Post, the Dolans have asked Bear Stearns to value Rainbow Media, which includes cable channels AMC, IFC and WE. That could mean that the family is leaning toward selling off the unit, which in the past has been valued as high as $3 billion.

The Post also speculated that Cablevision was also considering a second option -- one where it would acquire more programming assets, Web sites or music venues.

According to the newspaper, Cablevision may believe that the time is right to test the market for the programming unit, especially after AMC has emerged as one of the hottest programming properties in cable. Once a repository for old movies, AMC has emerged as a force in original programming – its Mad Men series won an Emmy award last year and recent new shows like Breaking Bad have attracted critical acclaim.

This wouldn’t be the first time that Cablevision considered selling Rainbow. In 1999, the unit was said to be on the block to help pay for upgrades to its cable properties. 
In 2000, then-USA Network chairman Barry Diller was in the running to buy the Rainbow assets. 

And in 2007, Liberty Media chairman John Malone was reportedly interested in a deal to acquire Rainbow. None of those deals ever came to fruition.

In a research report, Sanford Bernstein cable and satellite analyst Craig Moffett said he was not surprised by the possibility of a Rainbow sale. But he added that the Post story neglected to mention another alternative for the company -- using its considerable free cash flow to initiate a larger share repurchase program or issue a special dividend.

“We believe asset sales, not asset acquisitions, are not only preferable, but also much more likely,” Moffett wrote. “Cablevision remains sharply undervalued, in our view, and the Dolan family has clearly signaled - repeatedly - that they would like to own more of the business.  A significant divestiture could fund a more aggressive privatization of some or even all of the company, something that would otherwise appear impossible given disruptions in the credit markets.”

Bear Stearns also has a long history with the company – it was one of a group of bankers that committed $15.5 billion in financing to the Dolan family’s last attempt to take Cablevision private. And at one point the family said in Securities and Exchange Commission documents that it would consider selling Rainbow or other assets to help finance the deal. 

That became moot on Oct. 24 at a special meeting of shareholders at Cablevision headquarters, where shareholders voted down the going-private proposal. The Dolans’, who own a majority of Cablevision’s voting shares, had said they would not go through with the deal without a majority of the minority of other Cablevision shareholders. Those shareholders, upset that the Dolan offer was undervaluing the company and concerned that the deal did not include a vehicle for shareholders to participate in a future sale of the company, was voted down handily, with 71 million shares voting for the proposal and 117 million shares voting against it. About 762,000 shares abstained, according to Cablevision’s last 10-Q quarterly report.

Cablevision officials did not return an e-mail request for comment concerning the Post report.