Dolans Mull Asset Sales

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Cablevision Systems' ruling Dolan family might be willing to sell assets or shut down money-losing businesses to finance its $10.6 billion proposal to take the New York-area cable operator private, according to a Securities and Exchange Commission filing made Sept. 13.

The disclosure came in a proxy statement that set a date for shareholders to vote on the Dolans' offer. That meeting will be held on Oct. 24 at Cablevision headquarters in Bethpage, N.Y., at 11 a.m., according to the proxy statement.

This is the third proxy Cablevision has filed in relation to the Dolans' offer in May. But this one is different from the proxies filed in June and August, in that the family has admitted that it would possibly sell assets to raise money to finance the deal.

In its proxy statement in August, Cablevision said that in light of the credit crunch in the debt markets, interest costs and transaction fees from investment bankers Bear Stearns, Merrill Lynch and Bank of America could get significantly higher. At the time, Cablevision said it might consider changes to the debt structure. The three firms are providing up to $15 billion in financing to fund the deal and for future working capital.

In the most recent proxy, Cablevision said that because of the possibility of those increased costs, the Dolan family is considering several actions to reduce the company's overall leverage.

“Those actions will be taken in a manner consistent with the Dolan Family Continuing Investors' obligations under the merger agreement and such steps may include, among others, selling assets, entering into strategic partnerships, reducing operating expenses or discontinuing certain businesses which do not currently generate positive cash flow,” Cablevision said in the proxy statement.

The company did not identify those assets, but speculation in the past has centered on its Rainbow Media Holdings programming unit — which holds the cable networks AMC, IFC and WE TV.

Pali Research analyst Richard Greenfield said in a research note that setting the date in October should give the company time to close the deal before third-quarter results are released. Greenfield expects a healthy performance, which could make it easier to win shareholder approval. However, he added that investors could be upset that Cablevision would wait until after the deal closes to reduce leverage, rather than doing it now.

The moves show that the Dolans have no intention of giving up the transaction, he said.

“The Dolans really want to be private,” Greenfield wrote.

Sanford Bernstein cable and satellite analyst Craig Moffett agreed.

“Today's filing — indicating that the financing remains in place and the Dolans remain committed buyers — is clearly welcome news,” Moffett wrote in a research report.

Although Moffett added that questions remain as to whether shareholders will support the deal — the Dolans need a majority of the minority shareholders to agree to the sale for it to pass muster. The decline in Cablevision's stock price over the past few months to well below the Dolans' offer of $36.26 per share has increased the likelihood that shareholders will approve the transaction.

The company also revealed that management conducted an analysis of how sensitive its results were to increased competition from Verizon Communications. The telephone service provider has been rolling out its FiOS voice, video and data service in Cablevision territory, but Cablevision's analysis concluded that any FiOS subscriber gains could be offset by modest rate increases and cost containment.

According to that analysis, Cablevision assumed that FiOS would pass about 1.6 million Cablevision homes by the end of 2011 and that the telco's video service would ultimately be adopted in 10% of those homes. The analysis, conducted earlier this month, also estimated that FiOS passed 1.080 million homes in Cablevision's service territory at the end of August.

Management also prepared sensitivity analyses assuming Verizon FiOS systems will pass approximately 1.6 million homes and reach either 15% or 20% adoption. The negative impact of these changed assumptions on projected adjusted operating cash flow is offset or substantially offset by the impact of a revised assumption of higher annual rate increases of its cable services in the range of 3% to 4%, and other assumption changes, such as cost controls, that management believes are within its ability to execute.

However, the company said there can be no assurance that Cablevision would actually implement such rate increases, cost controls or other changes or that such actions would lead to the effects reflected in the sensitivity analysis.

Cablevision stock closed at $34.62 last Thursday, up 82 cents but still well below the Dolans' offer of $36.26 per share.

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