Cablevision Considers Spinoffs

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 several options to boost its stock price including spinning off some of its diverse holdings.

Chief Executive James Dolan, who has long argued the market undervalues Cablevision, said in a statement the company is "actively looking" at options to close the gap between the company’s operating performance and the market value of its shares.

Cablevision said its board has also authorized it to explore making stock buybacks or pay quarterly dividends. The Bethpage, N.Y.-based company is considered one of the strongest cable franchises in the country and also owns several cable networks and Madison Square Garden.

Cablevision’s market capitalization stood at around $8.5 billion and it had about $12 billion in debt as of the end of June, according to Moody’s Investors Service.

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. Those attempts have all failed, some amid family fighting between James Dolan and his father Charles, who at one point aired family grievances on the pages of New York tabloids.

The Dolan’s most recent offer was worth $36.26 per share, but that was rejected by shareholders as too low in October 2007. Cablevision shares rose $1.92 or 7.4 percent to $27.85 in afternoon 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 area, one of the best-run 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.

"They are trying to get the value they think is reasonably in its various parts," said Russell Solomon, a senior vice president in corporate finance at Moody’s Investors Service.

Solomon said the cable franchise alone is worth $15 billion to $18 billion, but that investors have grown skeptical of the Dolan entrepreneurial streak that has left the company with a diverse portfolio of sometimes unrelated properties. Cablevision most recently spent $650 million to buy Newsday, a newspaper based in Cablevision’s home turf of Long Island.

Cablevision has also made several public missteps. In 2006, the company admitted having awarded improperly dated stock options to a board member who had died, and a year earlier, Charles and James Dolan had a public spat about the future of a satellite venture called Voom.

In addition to Madison Square Garden, Cablevision also owns the three sports teams that play there: basketball’s New York Knicks and New York Liberty, and hockey’s New York Rangers.

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 Charlotte Bobcats expansion team 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."

The company also runs several cable television networks, including AMC, IFC and WE tv, as part of its Rainbow Media Holdings LLC unit. Solomon said that unit is probably worth at least $4 billion on its own. The company considered selling or spinning off Rainbow several years ago, but didn’t reach a deal.

The market for popular cable networks has been hot in recent months, with General Electric’s NBC Universal paying $3.5 billion for The Weather Channel and $875 million for women’s programming channel Oxygen. Cablevision paid about $500 million for the independent film channel Sundance in June.

Cablevision’s other entertainment venues include Radio City Music Hall and the Beacon Theater, both in New York, and the Chicago Theater.

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.

Solomon said it is more likely that Cablevision would pay a regular dividend on the order of about $100 million a year, or roughly 30 cents per share. That would put the company on equal footing with Comcast Corp., the largest cable operator, which reinstated its dividend earlier this year.