MSG spin talk boosts Cablevision

Dolan family says there are no plans to sell assets

NEW YORK -- Cablevision Systems soared more than 10% early Thursday on renewed Wall Street hopes that the Dolan family that controls the New York media empire could finally break it up via a spin-off of the Madison Square Garden unit. But the big rally didn't last through the day as Cablevision shares finished up 4.5% at $19.15.

The division "is largely a trophy asset with extremely volatile earnings," said Pali Research analyst Richard Greenfield. This has made it difficult to value for Wall Street folks, and most analysts admit they attribute less than $1 billion of value to it while acknowledging it is likely worth much more.

Miller Tabak analyst David Joyce says MSG could be valued at as much as $1.5 billion, while Moffett late last summer before the financial crisis and market crash suggested a valuation in the $4 billion range.

MSG includes the MSG arena, the New York Knicks NBA and New York Rangers NHL teams, the New York Liberty WNBA team, Manhattan's venerable Radio City Music Hall, as well as the Beacon Theater, Chicago Theater and the MSG sports and Fuse music cable networks, along with a couple of smaller assets.

Its spin-off could lead to more deal-making in the live entertainment space and, long-term Cablevision watchers hope, a possible sale of the rest of the company.

Cablevision had in the past attempted the separation of various Cablevision assets, such as a spin-off of the Rainbow Media cable networks business, to little success.

In the fall, the company had said it was once again exploring strategic alternatives, which left investment bankers salivating for business and investors for the possible unlocking of stock value. But the financial crisis put an end to the mulling of strategic options, instead focusing Cablevision management on ways to strengthen the balance sheet in the face of upcoming debt obligations.

Now that the company is in good shape, it seems ready to consider its options again, saying Thursday morning that its board has authorized management to explore an MSG spin-off.

It was the final sentence of the firm's earnings report, but for many investors and analysts it made up for mixed results.

"Cablevision saved the best for last," said Sanford C. Bernstein analyst Craig Moffett. "A spin-off of Madison Square Garden argues well for the possible realization of full value for the MSG set of assets. But perhaps more importantly, a spin-off of MSG raises the tantalizing prospect of a realization of the the value of the rest of Cablevision's assets."

Indeed, Cablevision watchers have long been praying for a big play, or as Moffett called it: "end-games for the Dolans." Said the analyst: "The idea that the family might concentrate its ownership into MSG, rather than the remaining stub, has to be considered a possibility."

For now though, the Dolans haven't said that any part of Cablevision is for sale. And on Thursday's conference call, they said no deals involving Rainbow or other assets are currently planned. Still, "separating out MSG will certainly make an acquisition of Cablevision long-term easier," said Greenfield.

However, an MSG spin alone would also unlock stock value by breaking out the unit and putting a spotlight on it. At the same time, such a spin would boost free cash flow at the remaining Cablevision assets. Greenfield said his free cash flow estimate for 2010 would rise from $773 million to about $1 billion when excluding the capital expenditures he estimates for MSG.

In addition, MSG could sell or merge its live entertainment business, which has become more important and visible. Greenfield mentioned the possibility of a deal with AEG Live or with another partner should the planned Ticketmaster-Live Nation merger fail.