Panel Picked to Weigh Dolans’ Offer

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Cablevision Systems Corp. said its board of directors Tuesday chose a special transaction committee of three independent directors to evaluate the Father’s Day bid by chairman Charles Dolan to buy out other stockholders and take the cable company private.

Cablevision didn’t name the three, but the six directors (out of 14) typically identified as independent are Charles D. Ferris, Richard H. Hochman, Victor Oristano, Thomas Reifenhauser, retired Navy Vice Admiral John R. Ryan and Vincent Tese.

The committee retained Wilkie Farr & Gallagher LLP as legal counsel. Analysts expect it to hire financial advisers, as well.

The Dolan Family Group proposed a $7.9-billion buyout of the 80% of Cablevision’s publicly owned shares not already owned by Charles Dolan; his son, Cablevision CEO James Dolan, and other members of the family group. The offer was $21 in cash per Cablevision Class A share and a stake in the Rainbow Media Holdings assets — including cable networks and sports teams — which the Dolans valued at $12.50 per share. Rainbow would be spun out to shareholders via that mechanism.

Analysts have likened the proposal to what Cox Enterprises Inc. last year first offered to public shareholders of Cox Communications Inc. to take that cable company private. Cox Enterprises increased the offer about two and a half months later and then the Cox Communications board approved the sale.

The consensus of analyst opinion appears to be that the Dolans will increase the offer somewhat, after the independent committee finds it inadequate, and that Cablevision will be taken private. Charles Dolan controls 71% of Cablevision’s shareholder votes, and the most likely interested buyers among MSOs — Time Warner Inc. and Comcast Corp. — already have a pending deal to buy Adelphia Communications Corp. and its more than 5 million customers.

Crucially, the Dolans said in the Father’s Day letter to Cablevision’s board that they are only interested in discussing the privatization offer and aren’t interested in selling their control stake in the company.

UBS Securities LLC analyst Aryeh Bourkoff on Wednesday made the Cox analogy and noted that Cox Enterprises ultimately increased its bid by the equivalent of 1 times Cox Communications’ annual cash flow.

“There could be a sweetener on the cable side of the transaction,” Bourkoff said, and it could either be financed by taking on more debt or “more logically” Cablevision could sell one of Rainbow’s assets. If so, it would be more likely to sell a programming asset than one of the New York City sports teams (such as the New York Knicks and New York Rangers) because of James Dolan’s abiding interest in those franchises.

Bear Stearns & Co. analyst Ray Katz, in a call to clients on Tuesday, also estimated Cox Enterprises raised its initial offer by about a cash-flow multiple (and that the Cox sale went through at 10.5 times cash flow). He said Cablevision would likely go private for a “more Cox-like” multiple but likely not a full 10.5 times cash flow, which could add $3.90 to the $21 cash part of the bid. In a note to clients Tuesday, he estimated the offer could be sweetened by $2 to $3 per share.