The thought behind a lot of these tracking stocks was that they would establish some sort of valuation for the component pieces of a business and boost the overall valuation of the parent. In some instances, like BNBN, the parent actually sold off a piece of the business. I don't think that was the case with RMG. Regardless, CVC announced today that they are going to undo the transaction.
biz.yahoo.com
Monday August 5, 1:54 pm Eastern Time
Reuters Business Report
Cablevision to End Rainbow Tracking Stock
By Derek Caney
NEW YORK (Reuters) - Cablevision Systems Corp. on Monday said it would end the Rainbow Media Group (NYSE:RMG - News) tracking stock after 16 months of trading, raising the possibility that cable channels AMC, Bravo and Independent Film Channel would be sold.
Analysts suggested the move could be Cablevision's first step toward putting the networks on the block to raise cash to meet its capital spending needs next year. Analysts estimate the funding gap could be between $500 million and $1 billion.
"We theorize that this move could be the first step in a sale of some of the cable networks in Rainbow Media Group that could be the solution to fund Cablevision's $500 million funding gap next year," Guzman & Co. analyst David Joyce said.
Cablevision is divided into two operating units. Cablevision NY Group (NYSE:CVC - News) holds cable systems with nearly 3 million subscribers in the New York area, the New York Knicks basketball team, the New York Rangers hockey team, and other assets, while Rainbow Media holds AMC, Bravo, IFC, Women's Entertainment.
Cablevision NY will exchange about 1.19 shares of its stock for each share of Rainbow tracking stock. A tracking stock refers to shares issued by a company that tracks a specific portion of its assets.
This amounts to $9.54 a share, a 3.6 percent discount from Rainbow's closing price on the New York Stock Exchange of $9.90 on Friday. The exchange will be effective on Aug. 20.
A company spokesman declined to comment further.
Shares of both companies dropped after the news, ranking them among the top percentage losers early Monday on the New York Stock Exchange.
Rainbow shares were down 18 percent, or $1.77, to $8.13, while Cablevision shares were off 14 percent, or $1.14, to $6.87.
SALE MAKES SENSE
Cablevision's plans to end the tracking stock comes amid tough questions from Wall Street, as its shares have fallen more than 80 percent since the beginning of the year.
Cablevision has acknowledged that if it continues its aggressive spending, it could fall short of its 2003 capital spending requirements by as much as $1 billion.
The company has said it would consider selling assets, cutting spending or raising cash by other means such as a debt offering to close the gap.
Cablevision announced plans for a Rainbow tracking stock in August 2000. At the time, the company believed the market was not assigning enough value to the cable channels, many of which were fully distributed in U.S. homes.
Shareholder votes to approve the tracking stock were delayed several times, as a number of buyers expressed interest in the assets, including Metro-Goldwyn-Mayer Inc., USA Networks, Viacom Inc. and General Electric's NBC, which already owns a stake in Rainbow. Analysts valued the assets at $3.5 billion to $5 billion at the time.
MGM eventually bought a 20 percent stake in four of the most widely-distributed Rainbow channels for $825 million. But no other deals were reached.
Investors said it makes sense for Cablevision to put the Rainbow assets on the block.
"Cablevision has the most concentrated cable footprint in the business in the best place to have it -- in Manhattan," one media investor said. "It has a monster funding gap, and it can get a decent price for Rainbow, because there will likely be multiple bidders. Why not sell it?"
MGM, Viacom and NBC have all been mentioned by analysts and investors as logical buyers. Viacom declined to comment. Neither MGM nor NBC were immediately available for comment.
Shares opened trading at $25.10 in March 2001, but as media shares fell into disfavor in the wake of the worst advertising slump in decades, Rainbow also suffered, eventually losing 60 percent of its value. |
