News

On Rainbow: Redstone Rises

1/12/2001 8:32 AM Eastern

Scottsdale, Ariz. -- As the deadline for bids on Cablevision Systems Corp.'s
Rainbow Media Group programming stable approaches, the cast of characters keeps
changing. Viacom Inc. apparently has re-entered the fray, while putative
front-runner USA Networks Inc. may be pulling back.

At the Salomon Smith Barney Global Entertainment Media &
Telecommunications conference here, Viacom chairman Sumner Redstone told some
analysts he was still interested in Rainbow. Meanwhile, USA reportedly sent a
letter to Cablevision officials telling them it will no longer participate.

According to sources, USA chairman Barry Diller dislikes being part of an
auction, and he told Cablevision executives he would rather negotiate one-on-one
with the MSO. Diller may not have dropped out altogether, though. He might just
be maneuvering for a better position.

'It's not necessarily that the interest has diminished, it's just that there
isn't an interest in participating in that kind of a process,' said one source
familiar with Diller's thinking, who asked not to be named.

Diller had placed a $4.2 billion cash, stock and assumed-debt deal on the
table, which, according to some reports, was later reduced to $3.5 billion.
Diller and Cablevision also were said to be negotiating about including some of
the MSO's debt in the deal.

Officials at Cablevision and USA declined comment.

Rainbow includes American Movie Classics, Bravo, The Independent Film
Channel, WE: Women's Entertainment (renamed from Romance Classics) and MuchMusic
USA. Removed from the bidding are Rainbow's interests in eight regional sports
networks, which would likely go to News Corp., the other partner in the sports
networks.

Cablevision and its investment bankers set a Tuesday (Jan. 16) deadline for
bids on Rainbow, and sources said the company hopes to wrap up a deal by Feb.
2.

Sources at the Salomon meeting said Redstone told some analysts at a private
session that he was a bidder for Rainbow.

'He did say he was bidding [for Rainbow],' one source at the breakout session
said. 'He said he would pay 20 times EBITDA,' or cash flow.

Rainbow's estimated 2000 cash flow is about $130 million, which would make
the Viacom bid $2.6 billion. Tack on Rainbow's $700 million debt and the price
rises to $3.3 billion.

The two companies were at odds regarding how to treat possible future
advertising revenue at AMC, which would affect cash flow, sources said.
Cablevision wants it included in the total price, and Viacom is reluctant to
estimate ad revenue for a network that is currently commercial-free.

Viacom officials declined to comment.

Viacom was an early participant in the bidding for Rainbow, but sources said
Redstone backed away after the price rose. However, the relative stability of
Viacom's stock versus USA's apparently encouraged Redstone to get back into the
picture.

That factor also spurred NBC to re-enter the bidding, according to a report
last week in Broadcasting & Cable.

NBC, which already owns 26 percent of Rainbow, returned to the bidding based
on the strength of its stock -- it is owned by General Electric Co. -- with a
cash and stock bid of $3.8 billion, the report said.

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