Tuesday, August 5, 2008

Cablevision Systems mulls spin-off of units


By JEREMY HERRON

NEW YORK (AP) — Nine months after shareholders rejected the Dolan family's latest bid to take Cablevision Systems Corp. private, the cable operator said Tuesday it is considering options that could see it sell some of its diverse holdings. Chief Executive James Dolan, who has long criticized shareholders for undervaluing what is considered one of the strongest cable franchises in the country, said the Bethpage, N.Y., company may also buy back stock or pay a special dividend.

Dolan said Tuesday the company is "actively looking" at options to close the gap between operating performance and the market value of its shares. The company plans to hire investment banking firms. Its market capitalization stood at around $8.27 billion. The announcement comes a week after Dolan said investors are "significantly" undervaluing the company. The Dolan family controls Cablevision through a special class of shares and has tried to take the company private several times in the past few years. Its most recent attempt offered shareholders $36.26 per share, but that was rejected as too low in October 2007. Cablevision shares rose 7.5 percent to $27.82 in midday trading Tuesday.

Cablevision did not say which of its businesses it would consider selling. Analysts consider its cable franchise, which serves the affluent New York suburbs, one of the best in the business. The unit is the country's fifth-largest cable system and accounts for 75 percent of company revenue. It includes high-speed Internet and phone services that have helped beat back competition from phone companies and satellite TV operators. The company runs several cable television stations, including AMC, IFC and WE tv, as part of its Rainbow Media Holdings LLC unit. The market for popular cable networks has been hot in recent months, with General Electric's NBC Universal paying $3.5 billion for Weather Channel and $875 million for women's programming channel Oxygen. Cablevision paid about $500 million for independent film channel Sundance in June. The company also owns Madison Square Garden and the three sports teams that play there: basketball's New York Knicks and New York Liberty, and hockey's New York Rangers. But potential suitors may have trouble placing a value on the Knicks or Rangers because Cablevision has intertwined contracts among the teams, the arena and the regional sports network that airs their games.

"It will be next to impossible to assess the franchise values unless you know what the contracts are that they work under," said Andrew Zimbalist, a sports economist with Smith College.

Assuming the arena and cable contracts were broken, Zimbalist said the Knicks would be worth about $500 million and the Rangers about $300 million. He estimated average revenue for a National Basketball Association team is $150 million. Forbes magazine ranked the Knicks as the most valuable franchise in the NBA at $608 million in its 2007 rankings, which includes an estimate for the arena deal. Cablevision paid $300 million for the Knicks in 1997, the magazine said. Robert Johnson, the billionaire founder of Black Entertainment Television, paid $300 million for the expansion Charlotte Bobcats in 2003, one of the last NBA teams to be sold. Hockey's Edmonton Oilers, a storied franchise in a small media market, recently sold for about $200 million.

"There's a very special media market in New York for sports teams," Zimbalist said. "There is significant value over and above the average franchise because of the market."

Cablevision's other entertainment venues include Radio City Music Hall and the Beacon Theater, both in New York, and the Chicago Theater. Cablevision is unlikely to sell newspaper publisher Newsday Media Group, following its $650 million purchase of Newsday from Tribune Co. The acquisition closed in July. The company has paid a special dividend in past, returning $3 billion, or $10 per share, in cash to shareholders in 2006. The company took on debt to fund that dividend, which may not be an option now because of the credit crisis.

"We believe that Cablevision's options will be limited by the credit markets," said Goldman Sachs analyst Ingrid Chung in a note to clients.

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