The Dolan family’s $10.5 billion bid to take Cablevision Systems private passed muster with a special committee of its board of directors, but it may not fly with shareholders not affiliated with the family.
The Dolans -- led by Cablevision founder and chairman Charles Dolan and his son, CEO James Dolan -- said Wednesday that their offer for the remaining shares of Cablevision stock they do not own was accepted by a special transaction committee of independent directors.
The deal still has to be approved by a “majority of the minority” of shareholders not affiliated with the Dolan family, and it also must pass regulatory muster.
Gamco Investors chairman Mario Gabelli, whose company owns about 8.5% of Cablevision’s outstanding stock, wouldn’t say which way he would vote, but he added that it seems that the Dolan family is getting the better end of the deal.
In an interview, Gabelli said that at $21.5 billion, the Dolans are valuing Cablevision at 10.5 times-11 times 2007 cash-flow valuation -- a low mark in his view considering the other assets in the mix, including Rainbow Media Holdings and Madison Square Garden.
“We think we’ve got $4.5 billion of value,” Gabelli said. “You are entitled as entrepreneurs to a piece of that. And I’m not opposed to giving a couple of billion [dollars], but I’m not so sure I want to vote in favor of $4.5 billion.”
Salvatore Muoio, principal and chief investment officer of S. Muoio, a New York-based securities-advisory firm that owns Cablevision shares, echoed Gabelli’s comments.
“It’s not a lay-up that you vote for it, from my perspective,” Muoio said.
Muoio was most concerned about the lack of a public stub in the deal -- a portion of the company that would remain public to allow current investors to participate in a future sale of the cable assets. The way the deal stands now, the Dolans would reap a large portion of the proceeds from a future sale of the cable company after the privatization deal is closed.
“I’m not so certain this does pass the majority of the minority test,” Muoio added. “Speaking for my clients, it would be great to have a participation in this company going forward. It’s a great business, it’s got a long way to go, you’re just entering a phase where free cash [flow] is going to start to get a lot larger. You want to participate in that. You want to participate in the sale to Time Warner. It’s going to happen.”
Time Warner has long lusted after Cablevision’s New York-centric assets and a going-private transaction could be a way to do a deal in the not-too-distant future. Time Warner -- which spun off its Time Warner Cable unit as a separate public company earlier this year -- could also use that stock as a deal currency. However, a Time Warner buy would have to wait at least until next year in order to avoid a big tax hit.
Nevertheless, on a conference call with analysts to discuss its first-quarter results, Time Warner chairman Richard Parsons said Cablevision would be an attractive asset.
“Our position going back for years on Cablevision is if the Dolans ever were to decide to part with that asset, we would certainly want to be on their list of people to talk to,” Parsons said.