Cablevision Deal Remains Very Much Up in the Air

At the Cablevision Systems annual board meeting in Palm Beach, Fla., in March, the company’s founding Dolan family held a private meeting with the board’s special committee — the two men who had rejected previous buyout offers from the family.

The Dolans wanted to make a fourth bid for the company, which they had founded in 1973. But before they pressed ahead, they wanted several assurances from the special committee, which at times has had an antagonistic relationship with the family.

Unlike previous offers, which were made public, the Dolans wanted to reach a deal privately with the board to avoid the embarrassment of another public rejection. And the family wanted to know what price it would finally take to win them over.

The two board members, Thomas V. Reifenheiser and John R. Ryan, turned to Lehman Brothers and Morgan Stanley, the board’s longtime advisers, which had urged the committee members to reject the Dolans’ previous offers.

What emerged was this week’s $10.6 billion offer, and this time Cablevision accepted. But the deal is far from assured.

In what is known as a “majority of the minority” requirement, the deal is subject to approval of more than half of shareholders, excluding the Dolans and the company’s directors and officers.

And analysts and investors are still concerned that the Dolans may be offering too little for Cablevision. Should the transaction be approved, the family could then sell the company — the most likely potential buyer is Time Warner Cable — and pocket billions of dollars.

“Four months ago, the Dolans said their offer was best and final,” Richard Greenfield, an analyst with Pali Research, said. “Less than four months later they’re miraculously able to come up with a more than 20 percent increase in their bid.”

The Dolans’ effort to take Cablevision private has been among the most scrutinized deal-making efforts, as investors have increasingly complained that management-led buyouts are winning companies on the cheap.

So far, it seems that the Dolans have resolved their impasse with the Cablevision board. Under the terms of yesterday’s deal, the Dolans would pay $36.26 a share for the company, an 11 percent premium to its closing price of $32.67 on Tuesday and 21 percent higher than the $30-a-share offer the family proposed in January.

The Dolans would contribute their own shares, valued at $2.1 billion, to a newly private Cablevision, and the company would take on $15.5 billion in debt to finance the deal. Merrill Lynch, Bear Stearns and Bank of America would provide the financing.

The company, based in Bethpage, N.Y., has been under the effective control of the Dolans for years. Though the family holds only a 20 percent equity stake, it has 70.4 percent of the company’s voting power.

But if the deal goes through, the Dolans, led by the company founder, Charles F. Dolan, and a son, James L. Dolan, may finally win complete control of one of the cable industry’s cash cows, which serves 3.1 million subscribers in the New York metropolitan area. Through its MSG Networks unit, Cablevision also owns Madison Square Garden and Radio City Music Hall, as well as the New York Knicks and the New York Rangers.

Cablevision’s geographical footprint is far smaller than those of rivals like Comcast and Time Warner Cable. Yet its subscribers are among the wealthiest in the industry, with many living in affluent suburbs on Long Island and New York’s Westchester and Rockland Counties.

What has long frustrated shareholders is the large amount of capital that companies like Cablevision and Time Warner Cable have spent fending off rivals in the telephone industry, like Verizon and AT&T. Cablevision has spent heavily to build out its so-called triple-play offerings, which include cable programming, telephone services and high-speed Internet access.

The company has been seen as especially vulnerable, because its geographical footprint lies entirely within that of Verizon, which is building a fiber-optic network to compete with cable.

Craig Moffett, an analyst with Sanford C. Bernstein & Company, said that Verizon had extended that service through about 18 percent of Cablevision’s service area.

But many analysts say that Cablevision started early in promoting its additional services, and has already started turning its capital spending into profits.

“Their free cash flow growth rates are eye-popping,” Mr. Moffett said.

That promise of profitability, however, has made Cablevision a highly visible takeover target. Chief among potential suitors is Time Warner, which has been interested in the company since the 1980s. Time Warner Cable is dominant in the New York City cable market, which would neatly mesh with Cablevision’s markets.

When asked in a conference call yesterday about the possibility of buying Cablevision, Time Warner’s chief executive, Richard D. Parsons, said: “You know, our position going a whole way 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.”

Source : http://www.nytimes.com