Rainbow Speculation Heats Up

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Cablevision Systems Corp. has again postponed a scheduled shareholders' meeting for its planned Rainbow Media Group tracking stock, causing some observers to believe a deal to sell the programming division may be coming soon.

The MSO announced last week that it would push back the shareholders' meeting-scheduled for Dec. 8-until Jan. 5. This is the second time Cablevision has postponed the gathering, which was first slated for Nov. 10.

Cablevision declined to comment on the reasoning behind the delay, adding in a prepared statement that it will "continue to evaluate all of its options and alternatives" related to the Rainbow assets.

The Rainbow tracker would include Cablevision's national programming assets, including American Movie Classics, Bravo, WE: Women's Entertainment, Independent Film Channel, MuchMusic USA and a 50 percent interest in eight regional sports channels.

High on the list of potential suitors is USA Networks Inc., which has tried to purchase Bravo in the past, but balked because of the high price.

But in light of recent programming sales-most notably Viacom Inc.'s $3 billion purchase of Black Entertainment Television-USA will apparently take a second look.

According to sources, USA chairman Barry Diller told a group of investors gathered for a dinner hosted by CS First Boston Inc. last week he was looking for a "clever way" to get Rainbow.

"He [Diller] said that it has been tough to buy from [Cablevision] in the past because they never want to sell, but apparently they've made that step. They've made the break," said one source that was at the dinner meeting. "Now, the question is price. He did say he would take an 'opportunity cost' to own a strategic asset. He made it clear he was interested."

But just how much USA would be willing to pay remains to be seen. Diller has prided himself on is ability to make acquisitions on the cheap and Cablevision is not known for dishing out bargains.

According to some sources, USA has already offered $3.5 billion for the Rainbow assets, only to be turned down by Cablevision. While that figure may seem low given the price paid for BET, some analysts argued that BET has substantially higher cash flow than the Rainbow properties-about $150 million last year-and is a more mature network.

Some analysts have valued the Rainbow assets at about $4 billion.

Diller is not the only party interested in Rainbow. According to sources, other potential suitors include Viacom, Comcast Corp. and Liberty Media Group Inc.

But one investment banker who asked not to be named said that the most logical buyers would be either USA or Liberty, or a combination of the two.

"Rainbow should be owned by an entertainment company," the banker said. "The days when it made sense for cable guys to own content are long gone."

One possible scenario has Liberty buying Rainbow and then selling the programming assets to USA. Liberty, which owns a 21 percent stake in USA, would either keep the interest in the sports networks or sell them to News Corp. Liberty owns about 8 percent of News Corp. stock.

Liberty president Robert Bennett would not comment on USA and Rainbow, but said at the UBS Warburg Media Conference in New York last week that Liberty has been supportive of Diller and his initiatives in the past.

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