Going Private? Cablevision Deal Still Uncertain

Oct 24, 06:31 AM

Current Headlines: By Keiko Morris, Newsday, Melville, N.Y.

Oct. 24--After watching the Dolan family attempt to take Cablevision private for two years, analysts said the fate of the Dolans' current $22 billion offer was still uncertain and threatened by recent criticism from influential and large shareholders.

"You wouldn't think that the company would call a meeting if they didn't have votes locked up," said Joe Bonner, senior securities analyst with the Argus Research Group. "But a lot of major shareholders have come out against it and it looks like a real toss up. It's hard for me to believe."

Shareholders are expected to vote on the proposal Wednesday.

Since 2005, the Dolans have made several bids to buy the company, raising their offers substantially from $21 per share, to $27 per share, to $30 per share and now to $36.26 a piece. James Dolan, Cablevision chief executive, said last week that the family would not change its last offer.

The company has stated that the proposal now on the table provides a substantial cash premium, but major investors, such as Mario Gabelli, CEO of GAMCO Investors, Inc., as well as influential companies that advise shareholders on how to vote, have come out against the deal, saying the bid undervalues the company.

"I think that Jimmy and Chuck Dolan will run a very interesting business over the next four or five years in a public forum and the stock will double," Gabelli said yesterday.

Gabelli, who says the Dolans should be offering about $50 a share, will vote against the proposal and has demanded an appraisal of Cablevision's shares under Delaware General Corporate Law.

ClearBridge Advisors, which, as of June 30, 2007, was the largest Cablevision shareholder with more than 31 million shares, also declared that the company would vote to turn down the offer last week.

Despite such public shareholder complaints, some analysts say the Dolans' offer is fair and caution that it might be a long time before shareholders will have such an opportunity in the near future.

"I think it's a good price for the assets," said Todd Mitchell of Kaufman Bros. of Manhattan. "I think the dissenting shareholders are playing a high-stakes game of poker because I don't think the Dolans will raise the offer again and I'm not sure they will have the ability to do that again."

When the Dolans proposed taking the company private for $30 a share, the shareholders asked for a 20 percent premium, Mitchell noted. The Dolans met their request, he said.

"The credit markets have tightened significantly," Mitchell said. " . . . I don't see a second buyer in the wings at least not immediately."

When the Dolans made their offer in May, they noted an increasingly competitive environment and said that taking the company private would provide a "new structure and entrepreneurial perspective" that will allow them "to keep gorwing the business." But some analysts say the Dolans have other motives behind their bid.

Some expect the Dolans to sell parts of its Rainbow subsidiary to generate cash and keep the vanity assets such as the sports teams, including the Knicks and Rangers.

"The Dolans have always run the company as they wanted and they have been very nimble as a public company," Bonner said. "Usually when people take something private it's because all of the profits go to them."

Cablevision is facing mounting competition from larger competitors such as Verizon, noted Mtichell. He believes the Dolans' offer to buy the company will set a minimum price for the company's assets in any future sale and allows the company to hide any information showing that the company's core business is deteriorating. In the meantime, the Dolans won't have to impress shareholders and can use the cash flow to pay debt, he said.

"If Verizon's coming in and you're a public company, you're going to fight them as best as you can," Mitchell said. "If you're private, you're going to keep the company in good enough shape to sell it down the road."

Analysts expect to see the stock drop if shareholders vote down the proposal. What next?

"I don't know, but conceivably if the deal falls apart and shares drop and the market drops, they \[the Dolans\] could come back and buy it for a lot less money," Mitchell said.

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