Cablevision Tale Gets New Twists

Apr 4, 2005  •  Post A Comment

Cablevision Systems managed to continue confounding the financial world last week, due to a series of decisions and developments that have left many Wall Street players without a clear sense of where the company might be heading.

A lot of the confusion rested with how Chairman Charles Dolan planned to keep his struggling satellite service Voom alive amid pleas from shareholders and some Cablevision board members that the operation be shuttered. Mr. Dolan indicated he has a plan in the works to keep Voom going and appeared to be preparing to block the planned sale of Voom’s lone satellite to EchoStar Communications.

But there were other developments as well. Cablevision last Thursday was dealt a setback in its quest to block the New York Jets football team from building a stadium on Manhattan’s West Side that would directly compete against Cablevision’s own venue, Madison Square Garden.

In addition, Cablevision was reportedly close last week to joining two private-equity firms that have teamed up to make a play for bankrupt cable operator Adelphia Communications.

The many events taking place last week proved to be a drag on Cablevision’s shares, which fell nearly 4 percent Monday through Thursday.

Perhaps the most pressing issue looming over Cablevision was Mr. Dolan’s plan for Voom. Based on an agreement reached last month, Mr. Dolan had until March 31 to come up with a funding plan to keep Voom alive or Cablevision could shut down the service. As of last Thursday afternoon, it was unclear whether Mr. Dolan would meet the deadline.

However, in a filing with the Federal Communications Commission last week, Mr. Dolan expressed a willingness to tap his holdings in Cablevision to keep the service running.

Mr. Dolan said in the filing that Voom is in the process of obtaining $400 million in financial commitments from its controlling shareholders-including Mr. Dolan and his son Tom-to keep the service running. Most analysts have speculated that Charles Dolan would likely sell off pieces of his interest in Cablevision, which has added to speculation that Cablevision might be angling to sell off its cable assets in the not-so-distant future.

In the same filing, Charles Dolan also protested the planned sale of the Voom satellite to EchoStar, arguing that the sale of the satellite stifles competition. Cablevision in February struck an agreement to sell to EchoStar the satellite for $200 million. EchoStar officials have maintained they want to move forward with the sale, even as Charles Dolan tries to block the deal in an effort to save Voom.

Analysts generally are welcoming the news that Charles Dolan might sell off his Cablevision stake.

Meanwhile, Cablevision is said to be close to joining two private-equity firms in submitting an offer to purchase bankrupt cable operator Adelphia Communications, potentially unseating a joint bid from Comcast Corp. and Time Warner that has widely been seen as the offer to beat.

Potential Partnership

According to an article in last week’s New York Times, Cablevision is in “advanced talks” to contribute its cable systems to a new public company that would be created by the private-equity firms Kohlberg Kravis Roberts & Co. and Providence Equity Partners. The value of the bid could be higher than the nearly $18 billion offer submitted by the Comcast-Time Warner partnership.

The emergence of Cablevision as a potential partner with KKR and Providence throws a wrench in what largely had been regarded as an auction all but sewn up by the Comcast-Time Warner team.

However, a number of analysts were discounting the report, noting that Cablevision lacks the clustering and synergy opportunities that have motivated Comcast and Time Warner to go after Adelphia and its 5.3 million subscribers.

Craig Moffett, a cable analyst at Bernstein Research, pointed out that Comcast’s and Time Warner’s own systems in markets adjacent to Adelphia systems, including most notably systems in Los Angeles; Cleveland; Buffalo, N.Y.; Florida; and Pennsylvania, creating opportunities to wring out synergies from being able to further cluster systems in those markets. “A Cablevision-Adelphia combination would deliver none of these synergies,” Mr. Moffett said.

In the stadium fight, Cablevision’s $760 million bid to buy rail yards from the New York Metropolitan Transportation Authority failed to beat a $720 million offer from the New York Jets professional football team. Cablevision, which owns Madison Square Garden, had opposed selling the land to the Jets, fearing it would compete with the Garden.

However, people close to Cablevision said the fight to block the stadium is far from over: Several state and local lawmakers have concerns over publicly funding portions of the stadium’s construction. In addition, there are indications that Cablevision and others might challenge the MTA’s decision to sell the land to the Jets.