Rainbow Meet Delayed, Suitor Speculation Rises


Cablevision Systems Corp.'s decision to postpone a shareholders meeting on its Rainbow Media Group tracking stock has analysts and observers speculating that a deal for the programming assets could be on the table.

The MSO announced Nov. 8 that it would push back its shareholders meeting- originally scheduled for Nov. 10-to Dec. 8.

"Over the course of the next 30 days, the company will evaluate all of its options and alternatives related to the assets that would comprise Rainbow Media Group," Cablevision said in a prepared statement. The company had no further comment.

That announcement set the industry abuzz with speculation that Cablevision is weighing outside offers for its programming arm.

Rainbow Media Group would include programming networks American Movie Classics, Bravo, Independent Film Channel, Romance Classics and MuchMusic USA, as well as several regional sports channels.

Not included in the tracker are its New York sports and programming assets-the Madison Square Garden arena; the New York Knicks, New York Rangers and New York Liberty professional sports teams; Madison Square Garden Network; Fox Sports New York; Radio City Music Hall; News 12 Networks and Metro Channels.

Possible suitors for Rainbow include General Electric Co. unit NBC, which already owns a 34-percent stake in the programmer. USA Networks Inc. USA chairman Barry Diller had expressed interest in the past in some Rainbow properties, most notably Bravo.

USA spokeswoman Adrian Becker said the company would not comment on rumors and speculation.

Both NBC and USA have expressed interest in buying cable programming in the past, and the available pool is drying up fast.

"I think NBC is watching BET [Black Entertainment Television] go, Barry Diller is watching things go," said one source who asked not to be named. "There are not many left."

Viacom Inc. agreed earlier this month to purchase BET for $3 billion in stock and debt. Diller, who made a run at NBC in the past, said USA is not looking to make acquisitions.

But USA did buy two networks in May-Trio and Newsworld International-and is trying to beef up its programming. Trio runs mostly acquired arts and entertainment programming from Canada, the United Kingdom and Australia, and could be a good fit with Bravo.

According to some analysts, Rainbow is valued at about $3.7 billion, which would make it a relative bargain for a large media company like NBC or USA.

While potential buyers may be circling Rainbow Media, also up for sale could be AT&T Corp.'s 30 percent stake in Cablevision, worth about $3 billion. AT&T, under pressure to deleverage its balance sheet as a result of a downgrade from credit rating agency Standard & Poor's, has said it would sell "non-strategic" assets in order to pay down debt.

In a conference call with analysts discussing its third quarter results, Cablevision vice chairman William Bell said the company was not interested in buying back its own stock.

Cablevision has been on an aggressive divestiture program to sell off non-core assets-including systems in Cleveland, Boston and Kalamazoo, Mich.-during the past year, but Bell said the proceeds from those sales are earmarked for paying down its own debt.

"We have not ever indicated we plan on using any of those proceeds for stock buybacks," Bell told analysts. "We are not interested in shrinking the capital base of the company."

Bell said during the conference call that AT&T must give Cablevision 30 days notice before selling its interest in the company, but no other restrictions apply.

"AT&T has not told us of any plans they may have in terms of their ownership of our stock," Bell said. "We like AT&T as a shareholder. If they decide to do something strategic, I'm sure we will be supportive of what they want to do."

The most logical buyer, other than Cablevision, would be Time Warner Inc., some analysts said.

"They are the hole in the doughnut," SG Cowen Securities Corp. analyst Gary Farber said, referring to the fact Time Warner owns cable systems that control 1.2 million New York City subscribers-including all of Manhattan and Staten Island-while Cablevision owns most of the rest of that metropolitan area. "Who else would want to own this thing?"

A Time Warner spokesman declined to comment on any possibility that it would buy the Cablevision stake.

An outright purchase of Cablevision would be out of the question for Time Warner right now, especially since its $127 billion merger with America Online Inc. is under intense scrutiny from federal regulators.

But buying a 30-percent stake in Cablevision would give Time Warner an entry into the company and prove to Cablevision chairman Charles Dolan that Time Warner is a serious suitor. Time Warner chairman Gerald Levin has given past hints that he has coveted Cablevision for a long time.

At an analyst conference discussing Time Warner's second quarter financial results in April, Levin said he did not expect to make any big acquisitions after the AOL deal was completed, but "there are certain geographic areas that would make obvious sense for our cable company..There are just maybe one or two cable companies that I have coveted for my entire career in the business, and that hasn't changed."

Most observers see Cablevision, with 2.8 million New York-area subscribers, as one of those companies.