Cablevision losing votes in private bid

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NEW YORK -- Many on Wall Street now believe that shareholders at a special meeting Wednesday will vote down the $10.6 billion buyout of Cablevision Systems, proposed by the Dolan family that controls the cable operator.

Opposition by large institutional shareholders, many of which have been holding out for a possible higher price tag, has been on the rise in recent days; the Dolans have made clear that they won't raise their bid; and the stock closed down 3.3% on Wednesday at $32.5, signaling that investors have lost faith that Cablevision actually will go private this time after previously failed bids over the past couple of years.

Some are warning that Cablevision shares could sink lower during the coming weeks.

While the Dolans control a voting majority in Cablevision, a majority of shareholders not affiliated with the family must approve the buyout, and that seems less likely, Wall Street observers said.

Standard & Poor's analyst Tuna Amobi said that the "confluence of recent events make it highly unlikely the deal would pass (the) shareholder vote" next week. Similarly, Pali Research analyst Richard Greenfield said in a report Wednesday that a shareholder rejection is the "most likely scenario now."

Citi Investment Research analyst Jason Bazinet also echoed that sentiment in a report that downgraded his rating on Cablevision shares to "sell." The headline to the report said it all: "Dolan offer unlikely to go through."

Bazinet cited the opposition from the largest shareholders a key risk, but added that even if shareholders approved the deal, "higher financing costs (amid the recent credit crunch) and deteriorating fundamentals may cause the Dolans to back away."

Many on Wall Street have argued that the Dolan offer of $36.25 per share undervalues Cablevision, and that the family, which has a reputation for following its own designs rather than shareholder wishes at times, is looking to buy it on the cheap and sell it for a profit.

Bazinet estimates that if the Dolans "flip" the company this way, they could make about $1.2 billion. "Clearly they are looking to flip the company to Time Warner Cable," which has long been seen as a logical buyer, one fund manager said.

Long-term media investor Mario Gabelli said last week that he will vote against Cablevision's going-private deal with the Dolans. This was one of the pieces of news that caused CEO James Dolan to issue a stern statement Tuesday that ruled out a sweetening of the family's offer.

On Wednesday, Gabelli struck back on his blog. "Jimmy, my clients are not looking for -- in Wall Street jargon -- a kiss from you," he wrote, adding his investment firm Gamco wants to retain a stake in Cablevision even if it goes private. "Since the sale of (the firm) was not and will not be shopped, we want a piece of the back-end" upside, he said. Gamco owns 8.3% of Cablevision.

In another setback for the Dolan buyout offer, RiskMetrics Group's ISS Governance Services unit, a shareholder advisory firm, late last week recommended that Cablevision shareholders vote against the going-private deal proposed by the Dolans, citing, among other things, "the higher theoretical price estimate by analysts."

Things turned even bleaker Wednesday when the Wall Street Journal reported that ClearBridge Advisors, Cablevision's largest institutional shareholder, plans to oppose the going-private deal as well.

CEO Dolan has already hedged his bets. "We are looking forward to next week's vote and hope that the transaction is approved, but I'd underscore that I am completely prepared to continue to lead the company into the future as a public company if the transaction is not approved," he said in his Tuesday night statement.

Some on the Street would still like the sale to the Dolans go through. "Given the weakness in cable equities over the past several months and a financing environment that is unlikely to enable the Dolan family to offer to take Cablevision private again anytime soon, we have been somewhat surprised how many large shareholders appear to be lining up against the transaction," Pali Research analyst Richard Greenfield said in a report Wednesday.

But with a growing number of people expecting that Cablevision will remain a publicly traded company, some on Wall Street are starting to discuss the implications.

Greenfield, for one, said that the company's shares "still offer compelling upside over the next 12 months, even if our current estimates are too high based on rising competition" in the video space and the stock will remain under pressure in the coming weeks.

"While the risk in buying Cablevision shares today is a 10%-plus drop in the share price over the next several weeks ... we believe the 12- to 18-month upside more than outweighs the near-term trading risk," he said.

But Bazinet already cut his price target on the stock by $3 to $33 on Wednesday, saying a shareholder rejection of the Dolan buyout could even push it down to close to $30.
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