Dolan family offers to take Cablevision private

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NEW YORK -- The Dolan family, which controls cable operator Cablevision Systems, has launched a second attempt at taking the company private in a simplified $7.9 billion buyout deal, the unveiling of which boosted shares of the company more than 10% Monday.

The Dolans said Monday that they informed the company's board of the new takeout bid in a letter Sunday. Cablevision said that the board has established a special transaction committee, consisting of directors Thomas Reifenheiser and John Ryan, to evaluate the offer.

The new $27-per-share all-cash takeout proposal values Cablevision's equity at $7.9 billion -- with the Dolans' stake worth about $1.7 billion -- and implies an enterprise value of about $19.2 billion when including the assumption of $11.3 billion in debt.

Compared to a going-private play by the Dolans last year, the new offer not only is higher and has a strong cash portion but also is for the whole company, including its cable networks, rather than just its cable assets.

Last year, the Dolans offered $33.50 per share in a deal that valued Cablevision's cable systems at $21 a share and proposed a $12.50-per-share spinoff of the company's other assets.

The latest bid comes after several other cable companies, including Cox Communications and Insight Communications, have gone private in recent years.

The Dolan family, led by Cablevision chairman Charles Dolan and CEO James Dolan, cited "intensifying competition," the risk of new market entrants and the importance of a flexible business as one key driver behind their buyout proposal.

Cablevision shares jumped 10.7% to $26.42.

Wall Street observers said Monday that the new Dolan offer is simpler and puts a higher value on Cablevision than last year's proposal, making it more likely to win approval. However, most still expect that the family will have to sweeten their bid.

They also argued that the higher offer price could further support shares of Comcast Corp. and Time Warner Cable, whose shares are expected to begin trading in the coming months.

TWC and Comcast also are still seen as possible suitors for Cablevision's cable assets down the line, even though the Dolans said Monday that they "are interested only in pursuing the proposed transaction and will not sell our stake in the company."

Citigroup analyst Jason Bazinet predicted "a modest tweak to the current offer" and said "a conservative private market value for Cablevision is $32 per share."

Sanford C. Bernstein analyst Craig Moffett said the Dolans' new offer puts a high per-subscriber valuation of about $4,900 on Cablevision's core cable business. However, "it will once again be the valuation of Cablevision's other assets that could prove most nettlesome," he suggested, calling its Rainbow Media cable networks unit "the most important determinant of noncable valuation." Moffett also said that Rainbow might be "broadly overvalued" in many of Wall Street's sum-of-the-parts valuation models.

"All in all, we believe it is reasonable to expect that the independent directors will require a somewhat sweetened deal," he said, particularly with a potential cable systems sale to an industry giant looming.

Most analysts said Monday that they expect no immediate counterbid by Time Warner Cable, other cable firms or private equity buyers.

The Dolans' 74% voting control could block any competing offer, but Cablevision's independent directors committee nonetheless would have to consider it. Still, most believe a takeover play by another cable giant -- particularly TWC -- could come down the line.

The Dolans said Monday that they are confident to win approval for their offer as it provides "a simpler structure, enhanced value and value certainty" compared with last year's bid, which an independent board committee deemed low.

The new offer's $27-per-share price tag represents a 17% premium over the stock's average closing price during the past two weeks and an earlier stock run-up, the Dolans said. It also represents a 11.3% premium over the stock's 52-week high and is 14.9% above the 2005 proposal.

The Dolans said they would invest their whole stake in the company in the deal and need total funds of about $10.9 billion to consummate the transaction, including the refinancing of existing credit facilities. They said they have received commitments for such funds from investment banks.

"Cablevision has led the industry in key measures of performance and has delivered impressive growth in shareholder value in recent years," Charles and James Dolan said. "Now, as we move to meet competitive challenges in the years ahead through a new cycle of investment in innovation and the attendant risks, this is a good time to give our public stockholders the opportunity to realize the value of their shares."

While the father-son executive team is set to remain in place under the proposed buyout and the overall business strategy will not change, the Dolans said a privately held Cablevision would be more flexible to react to market changes and challenges.
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