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Harbinger of Dolan Duel To Come?

8/22/2008 8:00 PM Eastern

Is Harbinger Capital, the New York-based hedge fund that snapped up shares of Cablevision Systems last week, bracing for a battle with Cablevision CEO James Dolan?

Harbinger sent Cablevision management into a bit of a tizzy in July when the company caught wind that it was buying shares. Harbinger, an activist investor that has pushed for change at its other large media holdings The New York Times Co. and Media General — then revealed in an early August Securities and Exchange Commission filing that it had owned 4.9% of Cablevision's outstanding stock.

According to some analysts, Harbinger was the likely reason Dolan said on Cablevision's July 30 earnings call that it would seek alternatives to boost shareholder value.

Now, in a 13-D filing Aug. 22, Harbinger revealed that it increased its Cablevision ownership stake to 8.1%, or about 18.95 million shares. That's up 65% from the 11.45 million shares the company revealed it owned in the earlier filing.

That has some thinking that Dolan — owner of the National Hockey League's New York Rangers — may soon end up throwing down the gloves with another NHL owner, Harbinger partner and Minnesota Wild minority owner Phil Falcone.

In a research note last Friday, Collins Stewart cable analyst Tom Eagan wrote that the increased stake indicates that Harbinger does not plan to be a passive investor.

“We expect restructuring efforts at [Cablevision] may be accelerated,” Eagan wrote.

Egan noted that the fact Harbinger continued buying Cablevision stock even as its initial position was made public and Cablevision stock began to rise is another indication that it means business.

According to the SEC document, two Harbinger funds — Harbinger Capital Master Fund I and Harbinger Capital Partners Special Situation Fund — bought 5.28 million shares and 2.6 million shares of the stock between Aug. 11 and Aug. 20. The two funds bought the stock in August at prices ranging from $29.81 to $31.79 per share. Cablevision stock closed at $32.46, down 10 cents each on Aug. 21. The stock rose by 20 cents per share in early trading Aug. 22, and is up more than 50% since July 30.

“Since most of the Harbinger shares were acquired after the run up above $29, we expect that Harbinger believes the stock is worth significantly more and plans to pressure the company to take action,” Eagan wrote.

Eagan added that may include requesting a board seat — unlikely, since Cablevision recently named two Dolan family members to the board.

While it would be nearly impossible for Harbinger to force the Dolan family out of Cablevision — the family controls 75% of the company's vote — some analysts have speculated that the hedge fund could force the sale or spinoff of assets or other measures by launching a high-profile media battle with the company.

Since announcing its exploration of value-increasing initiatives, Cablevision's board of directors authorized a 10-cent-per-share quarterly dividend, something the company has never done before. Dolan and members of management also went on a “listening tour” Aug. 11 to 13, meeting with major shareholders and soliciting their advice on how to close the public and private valuation gap in the stock.

Analysts have speculated for months that the company could sell or spin-off its Rainbow Media Holdings programming unit, including AMC, IFC, WE TV and the Sundance Channel, as one way to close that gap. In his note, Eagan suggested that with Rainbow and its recently completed acquisition of Long Island, N.Y., newspaper Newsday, Cablevision has sufficient assets to create a new content stock. Eagan values those assets at about $5.25 billion.

“There could be upside to these estimates,” Eagan wrote.

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