Cablevision Bid Rejected

The Dolan family, which built Cablevision Systems Corp. into one of the most successful cable TV providers in the country, is going to have to keep dealing with public stockholders for the foreseeable future.

Shareholders rejected a $10.6 billion bid from the Dolans Wednesday to take Cablevision private, clearly seeing the company as more valuable than the price the Dolans had agreed to pay. Cablevision has 3 million cable customers in the New York area and owns Madison Square Garden and the New York Knicks.

James Dolan, the CEO, announced the results of the vote at a special shareholder meeting at the company’s headquarters on New York’s Long Island. Dolan said the family was "disappointed" in the outcome but still viewed it as a vote of confidence in the company and its leadership.

On that point, the Dolans and their investors agree. Large Cablevision shareholders, Wall Street analysts and shareholder advisory firms all opposed the Dolans’ effort to take the company private.

Ironically, Cablevision’s own success undermined the Dolans’ buyout plans. The company has been a leader in signing up customers for premium services such as high-speed Internet and digital phone, a three-way package known as "triple play" which also tends to keep customers around longer.

Craig Moffett, an analyst with Sanford C. Bernstein, called the outcome an "unequivocal vote" that the Dolans’ price of $36.26 per share wasn’t enough. Moffett called the vote "a courageous decision to make for any money manager," knowing that it was sure to result in a short-term decline in the stock price, but also "a tremendous vote of confidence in the company."

Sure enough, Cablevision’s shares traded down after news of the vote came out, declining $1.04 or 3.3 percent to $30.82 in heavy trading, after the immediate guarantee of a $36.26 per share payout evaporated.

However, Moffett said Cablevision has a strong ability to generate cash and trades at a premium to its rivals, with a value of $5,000 per subscriber, versus $3,600 per subscriber at industry leader Comcast Corp.

Moffett said some investors were overly cautious about a potential threat to Cablevision from high-speed video and data services being rolled out from Verizon Communications Inc. over fiber optic lines.

Rich Greenfield, an analyst with Pali Research, said in a note to investors Wednesday that he values Cablevision at $47 per share and sees several possible opportunities for the company now that the going-private bid is off the table, including a possible sale of the AMC, IFC and WE cable networks.

The Dolans have tried several times over the past two years to take the company private, but couldn’t agree on terms with a two-person committee of independent directors on their board. This May their board approved their proposal to take the company private, but one of the conditions of the deal was that it be approved by a majority of the shares held outside of the family.

Cablevision didn’t release an exact vote count, but its two largest stakeholders had already said they would oppose the deal — ClearBridge Advisors, which has 14 percent of the stock, and funds controlled by Mario Gabelli, which have 8.3 percent. Gabelli gave notice in a regulatory filing Tuesday that he was prepared to go to court to seek a higher price for his shares if the deal went through.

ISS Governance Services, a leading shareholder advisory firm, recommended against the deal and noted that estimates by Wall Street analysts put the value of the company well above the Dolans’ offer of $36.26 per share — HSBC seeing a price of $42.82, and Deutsche Bank with $50 a share.

The Dolan family controls about 65 percent of the company’s vote through a special class of shares with powerful voting rights. James Dolan’s father, Charles Dolan, is the company’s chairman.