Wall Street analysts think that Cablevision Systems
Corp.'s long-term plans may become clearer soon when the company decides how it will
raise money to fund increased capital spending.
Amid renewed speculation that the company might sell or
spin off its programming assets, Cablevision CEO James Dolan and other executives told
analysts last week that a decision would be made "shortly" on possible asset
sales or other financial maneuvers to keep debt levels from rising sharply.
The company said last week that it plans to step up
spending on plant upgrades and other projects to as much as $1.2 billion this year from
$561 million in 1998.
To do that without increasing its debt-to-cash-flow
leverage much beyond its current level of about seven times, Cablevision is weighing asset
sales or possibly selling nonconvertible preferred stock.
"The message is that what we are going to do is manage
our leverage, even though we are in a very substantial capital program," vice
chairman William Bell said during a conference call.
Bell added that Cablevision has "several other
alternatives" besides selling its cable networks, as was speculated in several
published reports last week.
Among those reports: USA Networks Inc. reportedly would
like to buy American Movie Classics, its Romance Channel offshoot, Bravo and The
Independent Film Channel for $2 billion. Bell and Dolan wouldn't comment on the
Insiders at Cablevision's Rainbow Media Holdings Inc.
unit, which is 25 percent-owned by NBC Inc., confirmed that discussions had been held with
USA, but it was unclear whether USA chairman Barry Diller had made such an offer, or
whether such an offer was being considered.
Rainbow has long been considered a possible target for a
sale or spinoff, if Cablevision chairman Charles Dolan decided to go that route.
A sale or spinoff of the networks would make it easier to
sell the company's cable operations -- which have 3.4 million subscribers, centered
around the New York metropolitan area -- to a buyer that might not want the networks, such
as AT&T Corp.
AT&T will own a bit more than one-third of
Cablevision's stock after it completes its acquisition of Tele-Communications Inc.
Some analysts speculated that the Dolans might sell the
cable company and retain control of a spun-off Rainbow.
"Everything that they're doing makes it more
saleable to AT&T," said one Wall Street analyst, who asked not to be identified.
Cablevision could also look to raise money -- and obtain
currency for buying other programmers -- by selling a chunk of Rainbow through an initial
public offering. News Corp. successfully sold part of its Fox Entertainment Group that
About 18 months ago, Cablevision disclosed that it wanted
to set the stage for a possible sale or spinoff by shifting its debt away from the parent
company's "restricted" group.
During last Wednesday's conference call, company
executives said they expect a ruling from the Internal Revenue Service within 30 days on
whether the debt could be separated in a tax-free manner. The company indicated that it
expects a favorable ruling from the IRS.
Company executives wouldn't say which assets might be
sold, if any. Replying to a question from major shareholder Mario Gabelli, James Dolan did
say that the company might be willing to part with its Cleveland and Boston clusters if
there was an opportunity to add holdings in the more important New York region.
The big step-up in capital spending comes as Cablevision
forecast pro forma cash-flow growth of 10 percent to 12 percent in 1999, or 8 percent to
10 percent after year-2000-related expenses. That's also before expenses for modems
and residential telephony, analysts said.
Cablevision also predicted that basic-subscriber growth in
1999 would be about 2.8 percent, matching the company's internal subscriber growth in
the fourth quarter of 1998. And the company projected that its 1999 revenue would grow by
a pro forma 15 percent to 18 percent.
Cablevision said its fourth-quarter revenue rose 11.4
percent on a pro forma basis, while operating cash flow, pinched by the National
Basketball Association lockout, climbed 4.5 percent.
Overall, net revenue increased to $977 million in the
quarter, and operating cash flow rose to $251 million. Cablevision -- which owns the
NBA's New York Knicks -- estimated that cash flow would have risen by about 10
percent and revenue by 17 percent if the NBA season hadn't been shortened.
Boosted by continued demand for its "Optimum TV"
advanced-analog programming, average revenue per subscriber rose about 7 percent, to
$42.74 from $40.04 a year ago.
Much of the planned capital expenditures -- $800 million to
$900 million -- will go toward upgrading cable systems and expanding the Lightpath
commercial-telephone business on Long Island, N.Y.
The Bethpage, N.Y.-based MSO said it will accelerate plant
upgrades, and it expects 60 percent of its core New York cluster's plant to be at 750
megahertz with two-way interactivity by the end of the year.
Cablevision said it added 4,350 cable-modem customers
during the fourth quarter, ending the year with 11,200. It also has about 2,000
residential phone customers on Long Island.
Linda Moss contributed to this report.