Dolan May Sell Company Stake

Feb 21, 2005  •  Post A Comment

Charles Dolan’s decision more than a week ago to relieve Cablevision Systems of the remaining assets of his struggling satellite venture and keep them for himself is leading some on Wall Street to speculate that the cable pioneer might be moving closer to triggering a sale of the company he founded 32 years ago.

Mr. Dolan, Cablevision’s chairman, lost a boardroom showdown in January that pitted him against his son, Cablevision CEO James Dolan, over whether the cable company should continue funding Voom, a satellite service launched in October 2003 that has failed to register with consumers.

Charles Dolan had fought to keep Voom going, but a number of directors, led by James Dolan, nixed the idea and soon EchoStar Communications agreed to buy Voom’s lone satellite and the associated ground operations for $200 million. Sources familiar with the situation say the board’s decision created a rift within the Dolan family, which owns a controlling stake in Cablevision.

Now in an apparent move to keep his satellite dream alive, Charles Dolan has agreed to buy the remaining Voom assets not included in the EchoStar deal and create a new company controlled by himself and another of his sons, Thomas Dolan. The new company, called Voom HD LLC, will own 21 high-definition channels, customer agreements and satellite licenses associated with the service. The expectation is that Voom will continue to offer its high-definition satellite service by leasing capacity on other satellites.

The Cablevision board is expected to approve the deal by the end of the month.

At first blush, Cablevision’s decision to sell the remaining Voom assets to Mr. Dolan removes the last of a series of dark clouds that have loomed over the cable company since it first announced its plan to go into the satellite business.

Cablevision has spent well over $500 million trying to build a business around Voom-referred to by many analysts as a money pit-only to come up short. At the end of the 2004 third quarter, Voom had only 26,000 subscribers and was burning through tens of millions of dollars each quarter. So Cablevision’s decision to end its support for the service was met by strong approval from shareholders and analysts.

However, Charles Dolan’s latest move again raises questions about Cablevision’s future. In particular, some analysts are wondering whether his commitment to keep the Voom business going signals a waning interest in Cablevision’s cable business, which has been a strong performer in recent quarters and presently has the highest average revenue per subscriber of any multiple system operator.

The purchase of the remaining Voom assets “clearly shows Chuck Dolan’s obsession with Voom and his complete lack of interest in the core cable business … which could indicate a willingness to sell the cable assets,” Fulcrum Global Partners analyst Richard Greenfield said.

A Cablevision spokeswoman did not return a call seeking comment.

The notion of Cablevision being put up for sale is nothing new. Every couple of years the company is mentioned as a potential takeover target, with speculation usually focusing on Time Warner as the most likely buyer, given it already has a strong presence in the lucrative New York metropolitan area. But each time the talk of a sale quickly dies, in part because Mr. Dolan has demanded a per-subscriber price of between $6,000 and $7,000-well above what most potential buyers would be willing to pay.

Craig Moffett, a cable analyst at Bernstein Research, pointed out that with Mr. Dolan’s decision to purchase Voom and keep it going, Mr. Dolan will have to find funding and faces few options beyond selling his stake in Cablevision. “It definitely raises the question of how he will pursue his dream of Voom without selling his stake in Cablevision,” Mr. Moffett said.

Fulcrum’s Mr. Greenfield agreed, noting that Mr. Dolan would have a difficult time obtaining financing for Voom without selling his stake in the cable company. Another factor that might lead him to dump Cablevision: Mr. Dolan owns about $1.8 billion worth of Cablevision stock, which matches up nicely with the $1.5 billion price tag Mr. Greenfield estimates would be needed to keep Voom going for the next several years.

If Mr. Dolan does decide to sell the cable assets, some analysts continue to see Time Warner as the likely buyer, even as the media giant goes after Adelphia Communications by bidding jointly with Comcast.

Mr. Moffett noted that Time Warner would be interested in owning systems in L.A., where Adelphia owns systems, and in New York. He added that Time Warner might be able to structure a merger of Time Warner Cable with Cablevision that would peg the transaction value at a price acceptable to Mr. Dolan without requiring that Time Warner shell out commensurate cash and stock to get the deal done.