Panel OKs Cablevision plan for privatization

Wall Street and the Dolan family have had a checkered history together, and the Dolans have finally found an escape, announcing an agreement Wednesday to take the company private for $22 billion, removing Cablevision from the klieg lights of analysts and quarterly reports.

The independent committee's approval of the Dolans' offer brings the cable dynasty closer than ever to ending the company's 21-year run as a public entity.

After years of spending money to expand its network, Cablevision's capital expenditures are falling quickly just as the company earns more money from such products as digital cable, Internet access and telephone service. The reduced expenses will far offset any losses from competition with Verizon, which has entered Cablevision's turf, analysts said.

The deal also would help the company avoid the public glare from such controversies as the failed Voom satellite venture, boardroom coups and backdating of options, which became public storms because the company was accountable to shareholders.

Under the agreement announced Wednesday, the Dolan family would buy 292.4 million outstanding shares for $36.26 apiece -- $10.6 billion combined -- and assume $11.4 billion in debt for a total value of $22 billion.

"We are very proud of the company's track record of delivering quality service and innovative products to our customers," Cablevision's top executives Charles and James Dolan said in a press release on behalf of the Dolan Family Group.

"We believe the best way to continue this tradition in today's increasingly competitive environment is as a privately held company. This new structure and entrepreneurial perspective will enable us to keep growing the business."

At the $36.26 share price, the Dolan family's stock is worth $2.5 billion. The Dolans would invest $2.1 billion of their stock in the new private entity, according to a press release.

The Dolans have secured $15.5 billion from Merrill Lynch & Co., Bear, Stearns & Co. Inc. and Bank of America to finance the deal and refinance existing debt. The family has agreed to pay $300 million to Cablevision if they breach the deal.

Some analysts expect the .Dolans to sell parts of its Rainbow subsidiary to generate cash. The subsidiary owns sports teams, TV networks and Madison Square Garden, but James Dolan, president and chief executive of Cablevision, would likely keep control of Madison Square Garden, the Knicks and Rangers, analysts said.

Although the Dolans control 74 percent of the voting power, the deal must be approved by a majority of shareholders excluding the Dolan family and Cablevision directors and executive officers. The deal also faces regulatory approval.

The Dolans founded Cablevision in 1973 with 1,500 households and took the company public on the American Stock Exchange in 1986.

The company now boasts 3.1million customers throughout the metropolitan area, worth more than $5,000 apiece based on the Dolans' offer, according to some analysts.

Analysts have praised Cablevision, noting that the company expanded into Internet-based phone service early on and grabbed more than a million phone customers within a few years.

And though Cablevision got a late start in digital cable service, it now enjoys the biggest rate of digital subscribers in the industry, with 80 percent of its customers subscribing to its iO digital service.

But the stock has traded for lower than it should have for years because of the large capital expenditures that drain cash flow, analysts said. The company has been paying out hundreds of millions of dollars each year to expand its cable network, installing fiber-optic cables throughout its service area.

Capital expenditures, which are the bulk of cable company's expenses, are winding down after years of increases, as Cablevision already has installed fiber-optic cable throughout its network.

This year, Cablevision will spend $730 million on capital expenditures and generate free cash flow -- what's left after expenses, taxes and interest payments -- of $500 million, said Craig Moffett, vice president and senior analyst at Sanford C. Bernstein, an investment research and management company.

By 2010, capital expenditures will fall to $690 million, and free cash flow generated from the expanding business will balloon to $1.5 billion, three times this year's estimate, Moffett said.

"The Dolans are the ultimate insiders, and they understand the long-term free cash flow prospects of this business better than anyone, and they're falling over themselves to take it private," Moffett said. "That ought to be a pretty loud and clear signal to investors that maybe the public equity market has it wrong."

Thomas Eagan, media analyst with Oppenheimer & Co., said, "After your company becomes cash-flow positive, there's less reason to be a public company ... because you don't need the market to finance growth."

Investors also undervalued the company because of the Dolans' idiosyncratic management style, analysts said. But as a private company, the Dolans could break away from public scrutiny.

"The Dolans have always had a very, what I would call, an interesting soap opera, and to take that soap opera out of Wall Street's eyes I think they would probably prefer," said April Horace, an analyst at Janco Partners Inc., a research company focusing on telecommunications.

Other cable companies, most notably Cox Communications, have done the same and gone private, concluding that Wall Street failed to recognize their inherent worth.

The Dolans have been trying for two years to take Cablevision private. An independent committee has rebuffed the Dolans' previous offers, which have ranged from $21 in a complex deal for part of the company in 2005, to $30 for the whole company in January.

The most recent bid is 21 percent more than the $30 bid rejected in January.

More important for existing shareholders, the offer represents an 11 percent premium over Tuesday's close of $32.67 -- already substantially higher than share values before the Dolans initiated the bidding process. Shares rose to $35.90 at 4 p.m. Wednesday.

The transaction, which follows extensive negotiations, was approved by a special committee of independent company directors advised by a team of independent legal and financial advisers.

Just as the Dolans have moved further than ever in their attempt to take the company private, its neighbor and rival Time Warner Cable reiterated Wednesday its interest in the cable empire.

The transaction will consist of a merger between Cablevision and a new, privately held company called Central Park Holding Co. Llc. Cablevision will continue as a subsidiary of Central Park Holding.

The Dolan family group includes parents Charles and Helen Dolan, their children, spouses and trusts for grandchildren.

Cablevision's news release Wednesday said lawyers representing shareholders who had objected to the going-private transaction, which was proposed as early as 2005, had "actively participated in the negotiations" on the current deal. The lawyers could not be reached for comment.


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