Cablevision May Pare Non-N.Y. Systems

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Keeping its focus on the lucrative New York metropolitan
area, Cablevision Systems Corp. said last week that it is pursuing "strategic
alternatives" involving its systems in Boston, Cleveland and Kalamazoo, Mich.

Although the Bethpage, N.Y.-based MSO would not say what
those strategic alternatives are, it is likely that the company is leaning toward a
combination of cash and systems swaps for the properties.

The Boston and Cleveland markets -- with 354,000 and
311,000 subscribers, respectively -- are well-clustered systems in major metropolitan
areas.

But because they are outside of the New York metro area --
where the bulk of the company's 3.5 million subscribers reside -- some analysts have
figured that it was only a matter of time before the company began to seek out a deal to
divest those properties. Kalamazoo has about 49,000 subscribers.

Given current valuations of between $3,000 and $4,000 per
subscriber, the three systems could be worth between $2.1 billion and $2.9 billion.

Cablevision said it wants to have deals in place by
mid-November, and it hired Bear Stearns & Co. and Merrill Lynch & Co. to assist.

In March, Cablevision president and CEO James Dolan told
analysts he would consider a swap of the Boston and Cleveland systems if there was an
opportunity to add holdings in the more important New York region.

Shedding noncore assets is nothing new to Cablevision. In
1997, the company sold its U.S. Cable properties with about 265,000 customers to Mediacom
LLC, a Middletown, N.Y.-based MSO, for $315 million. In all, Cablevision sold 475,000
subscribers in that round.

Last year, meanwhile, the company significantly added to
its New York-area holdings. It made a huge systems-for-equity deal with
Tele-Communications Inc. (now AT&T Broadband & Internet Services), gaining systems
in New Jersey and in areas around Westchester County and Long Island, N.Y., in return for
12.2 million Cablevision shares.

Focusing on the New York metro market makes sense for
Cablevision. Aside from having the bulk of its systems in that area -- it claims to have
the largest single regional cluster, with 2.5 million cable homes -- Cablevision also owns
sports teams and sports-programming channels in that market.

The Cablevision fold includes Madison Square Garden, which
owns the New York Knicks National Basketball Association team and the New York Rangers of
the National Hockey League.

The company also owns Fox Sports New York and Madison
Square Garden Network, which air games from the major sports teams in the area.

In addition, Cablevision has a long-term lease on one of
the more well-known entertainment venues in New York, Radio City Music Hall.

"Concentrating on one market -- New York -- where
Cablevision has live and televised sports and entertainment offerings, backed by a
state-of-the-art broadband network, will allow the company to execute a competitive,
aggressive strategy," Dolan said in a prepared statement. "Boston and Cleveland
are excellent markets, and our successful efforts there will always be an important part
of Cablevision's heritage."

PaineWebber Inc. vice president of research Thomas Eagan
said the Cablevision announcement was expected, especially as larger operators look to
rationalize their markets.

"I think it will be a net plus for the industry,"
Eagan said. "This is all part of the system swaps we've been talking about for a
while now. This is all part of reconfiguring your finances and operating structure to
optimize your clusters. They don't own any sports teams in Boston. It makes sense to put
their priority on New York."

Eagan said it is likely that Cablevision will look for a
deal that includes other systems, as well as cash, mainly because the company said it
would also like to reduce its debt. He added that candidates for the Boston system include
MediaOne Group Inc., Charter Communications and Adelphia Communications Corp.

However, Eagan said, the ultimate Cleveland buyer is a big
question. Large MSOs with operations in that area include Comcast Corp., Time Warner Cable
and Adelphia. "I wouldn't be surprised if Comcast is involved," he added.

Comcast also has some systems in northern New Jersey --
near New York -- that could be attractive to Cablevision. However, just how many of those
systems Comcast is willing to give up -- they are part of a huge supercluster with 3.7
million customers stretching from Philadelphia to Washington, D.C. -- is anybody's guess.

Although a swap seems logical, CIBC Oppenheimer Corp. cable
and telecommunications analyst Aryeh Bourkoff said there was a strong argument for an
outright sale. Bourkoff wrote in a report shortly after the Cablevision announcement that
he believes the main catalyst for seeking out strategic alliances is AT&T Corp., which
owns a 33 percent stake in Cablevision.

According to Bourkoff's report, paring down Cablevision's
subscriber base will help to keep AT&T more in line with the Federal Communications
Commission's cable-ownership limits, which are currently capped at 30 percent of total
cable households.

With AT&T's pending acquisition of MediaOne being
evaluated by the FCC, AT&T can use all of the help it can get regarding attribution.

"We assume that Cablevision would choose to sell,
rather than swap out of, most of these systems for cash proceeds, which would be used to
pay down debt and for its capital-expenditure program," Bourkoff wrote.

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