Cablevision Gets Rainbow Tax Ruling


Cablevision Systems Corp. said last week that the Internal
Revenue Service consented to a tax-free transfer of Rainbow Media Holdings Inc., meaning
that Cablevision might issue a tracking stock for its programming arm.

Last Monday, the Bethpage, N.Y.-based MSO said it got a
private-letter ruling from the IRS that would permit CSC Holdings Inc. to transfer stock
in Rainbow to Cablevision. After that, Rainbow would become a direct subsidiary of
Cablevision, and ownership could be shifted to shareholders.

The company said in a statement that it had made no
decision regarding whether it would transfer the Rainbow stock, declining further comment.
But Wall Street expects Cablevision to separate out the Rainbow assets through a tracking

The sticking point had been whether the company could
transfer the stock in a tax-free manner. Now that the hurdle has been cleared, most
analysts expect a Rainbow tracker to be issued soon.

Cablevision has about six months to issue a Rainbow
tracking stock before refiling with the IRS.

Rainbow's assets include American Movie Classics, Bravo,
The Independent Film Channel, MuchMusic USA and Radio City Television. Regional
programming offerings include MSG Metro Channels, Fox Sports Net and News 12 regional news
channels in New York, Connecticut and New Jersey. General Electric Co.'s NBC owns 25
percent of Rainbow.

According to SG Cowen Securities Corp. analyst Gary Farber,
Cablevision officials have said in the past that they would issue a tracking stock for
Rainbow if they could. "If they don't take advantage of this, I would be very
surprised," he added, "particularly when you see how well other tracking stocks
have done"

Although they don't correspond directly to asset ownership,
tracking stocks have proven popular with investors. For companies, they offer the ability
to unlock value from high-performing but undervalued assets.

Liberty Media Group, AT&T Corp.'s programming
subsidiary, and General Motors Corp.'s Hughes Electronics Corp. tracking stocks are among
the popular issues. Excite@Home Corp. and AT&T both got lifts on Wall Street after
disclosing plans to issue new tracking stocks.

Cablevision's stock got an early lift the day after the
announcement, but it bounced around later in the week.

Separating Rainbow would fuel Wall Street speculation that
Cablevision chairman Charles Dolan and CEO James Dolan might want to sell off their cable
systems and focus on Rainbow's programming and sports properties.

Rainbow's assets have also been the subject of much merger
speculation, with media reports over the past two years claiming that Cablevision had held
talks about Rainbow with USA Networks Inc., Viacom Inc., Liberty and The Walt Disney Co.'s
Miramax, among others. So far, no such alliances have been struck.

Farber added that a tracking stock could be a deal currency
for programming or sports assets. The other widely reported rumors that have yet to come
to pass involve the Dolans' interest in the New York Mets and New York Yankees Major
League Baseball squads.

"Maybe they could buy networks, maybe a baseball
team," Farber said. "This [tracking stock] isolates the value. They have a lot
more flexibility with a business where growth is driven in a different direction than the
core cable business. Looking further out, if they want to get into the Internet, this
could be one way to do it."