Cablevision Systems’ ruling Dolan family failed last week in its second attempt to take the nation’s fifth largest cable operator private, prompting further speculation as to what the family will do next.
The Dolans — led by Cablevision founder and chairman Charles and his son, CEO James — were rebuffed by a special transaction committee the board of directors set up specifically to review their offer of $8.9 billion, or $30 per share. In a letter to the family, the committee called the latest offer “inadequate.”
It was the second time in as many years that a plan to take the company private was rejected.
In 2005, the same special committee denied a complicated $7.9 billion offer by the Dolan family to take the cable assets private and spin off the Rainbow Media Holdings programming unit.
'BEST, FINAL PRICE’
The special committee’s latest response came well in advance of a Jan. 17 deadline imposed by the Dolans to either accept or deny their offer. When the family made its revised proposal Jan. 12, they said it was their “best and final price.”
Whether the Dolans abandon their efforts to take Cablevision off the public rolls remains to be seen — Chuck Dolan is known for drawing lines in the sand only to erase and redraw them. But as of Jan. 19, the family had made no new offer.
“It’s a crapshoot now,” Miller Tabak media analyst David Joyce said. “It could stay public, they could sell the whole thing, they could bring in a partner, they could raise their bid a couple bucks. I’m not leaning in any particular direction yet.”
Oppenheimer cable and satellite analyst Tom Eagan was equally stumped by what the Dolans’s next move will be. “The company’s history speaks for itself, that management before has come up with strategies and tactics that people didn’t expect,” he said.
Eagan also thinks taking the company private will require a substantial increase in the price, something he believes the Dolans aren’t prepared to do.
“I would expect them just to wait because it could be the factors that have driven the stock up lately, they could, over time, subside,” Eagan said. “Maybe they want to give it some time.”
On Jan. 18, Cablevision’s stock price spiked more than 5% ($1.51) to $30.77, mainly on speculation as to what the Dolans could do.
And they could do a lot.
Among their options:
- Keeping Cablevision a public company, retaining their 20% equity stake and 70% voting control;
- Taking on an equity partner to raise their bid yet again;
- Selling assets — particularly Rainbow Media with its national programming services AMC, WE, IFC and Fuse — to increase the bid;
- Selling the company outright, probably to Time Warner Cable.
Investors appear to be open to all of those options.
$30 NOT ENOUGH
One of Cablevision’s largest shareholders — Gamco Investors, which owns about 8.5% of the Bethpage, N.Y.-based operator’s outstanding shares — has publicly endorsed either bringing on partners or selling the company.
Gamco chairman Mario Gabelli wrote in a blog last week, prior to the special committee announcement, that given the appreciation of cable stocks and the disparity between public and private market values, $30 per share wasn’t enough.
“Given the knowledge we have today, we believe the offer of $30 leaves too much on the table for insiders,” Gabelli wrote. “Our own analysis indicates that private market values are substantially higher and growing.”
Gabelli suggested two alternatives. One is raising the bid using a $6 payment-in-kind preferred offering, which, he wrote, would alleviate interest-coverage concerns.
The other alternative is a merger with Time Warner Cable, whereby Time Warner would issue 200 million shares of its newly traded stock in exchange for the cable assets and the assumption of about $12 billion in debt.
TIME WARNER WAITING?
With a newly issued cable-centric stock set to be issued at least by early February, years-long speculation about Time Warner Cable and Cablevision has restarted.
Time Warner Cable shares have traded on a when-issued basis since Jan. 5, at prices ranging from $40 to $43 each. But the stock is not expected to begin trading officially until the end of this or early next month.
Time Warner might have to wait at least a year before issuing new stock to acquire Cablevision, or face a tax hit.
“I think that is probably an end of 2007 or early 2008 event,” Eagan said.
In a statement, Cablevision said that it would have no further comment.