Cablevision to Eliminate Rainbow Media Tracking Stock (Update6)
By Holly M. Sanders
Bethpage, New York, Aug. 5 (Bloomberg) -- Cablevision Systems Corp., the New York City area's biggest cable-television company, is eliminating the stock that tracks the company's ownership in channels such as Bravo about 17 months after creating it.
Each Rainbow Media Group share will be exchanged for 1.19 Cablevision NY Group shares on Aug. 20, the company said in a statement. The offer values Rainbow Media at 3.6 percent less than its closing price Friday. Rainbow Media shares plunged as much as 22 percent today; Cablevision slid as much as 19 percent.
Cablevision may be consolidating the tracking stock ahead of selling some of the unit's assets, investors and analysts said. The Bethpage, New York-based company, controlled by the family of Chairman Charles Dolan, has said it needs to raise money, pare spending or sell properties to prevent a cash shortfall next year that some analysts estimate at as much as $900 million.
``The cable group is really under the gun to create some liquidity,'' said Kevin Loome, an analyst specializing in high- yield cable bonds at T. Rowe Price, a holder of Cablevision debt, preferred shares and common stock among its more than $100 billion in assets. ``Anything they can do to buy themselves another year would be viewed as a good thing.''
Tracking shares monitor the performance or earnings potential of a unit; they don't represent ownership in the business. Companies such as WorldCom Inc. and Sprint Corp. have said they were either dropping or thinking about scrapping tracking stocks to reduce investor confusion.
Charles Schueler, a spokesman for Cablevision, declined to comment on the company's reason for the transaction. Cablevision has said it will address the projected funding shortfall at an investor meeting on Aug. 8.
Shares of Cablevision declined 47 cents to $7.54 at 4:06 p.m. in New York Stock Exchange composite trading. They have plunged 84 percent this year. Rainbow Media fell 90 cents to $9. The stock has dropped 64 percent this year.
Simplifying Structure
Cablevision is under pressure to simplify its structure after an accounting scandal at Adelphia Communications Corp., the cable operator whose founding family was accused of looting the company of more than $1 billion, driving it into bankruptcy. Investors have linked the two because Cablevision, like Adelphia, is dominated and controlled by its founding family.
Cablevision is divided into two operating units. Cablevision Systems New York includes the company's cable systems, the New York Knicks professional basketball team and Madison Square Garden. Rainbow Media includes four cable networks -- Bravo, American Movie Classics, WE: Women's Entertainment and the Independent Film Channel -- and five regional sports channels.
The units report financial results separately. The inclusion of Rainbow Media will boost Cablevision's sales and earnings before interest, taxes, depreciation and amortization, analysts have said.
``This is a procedure that will help simplify Cablevision's corporate structure,'' said Guzman & Co. analyst David Joyce, who rates the shares an ``outperform'' and doesn't own any. ``This could be the first step in selling one or all of the cable networks, which would take care of funding gap.''
The exchange offer values Rainbow Media shares at $8.97 each, based on Cablevision's closing price today.
Complicated Partnership
Cablevision created its tracking stock in March 2001 to reflect the performance of Rainbow Media Holdings Inc., a complicated partnership that includes the company's four networks and five regional sports channels.
Cablevision owns about 77 percent of the partnership, with General Electric Co.'s NBC television network holding the rest. News Corp.'s Fox Entertainment Group Inc. and Metro-Goldwyn-Mayer Inc. also have ownership interests in Rainbow Media assets.
Under an agreement, News Corp. has a ``put'' option that could force Cablevision to buy back News Corp.'s interest in Rainbow's five regional sports channels. The option becomes exercisable in December. Cablevision would have difficulty raising the cash should News Corp. exercise the put, analysts have said.
Cablevision may have to distribute some of the proceeds from a sale of Rainbow Media assets to NBC, Fox and MGM because of their ownership interests, though it would depend on how the transaction is structured, analysts have said.
Some analysts and investors had predicted that Cablevision would chose to sell its wireless licenses in New York, Boston and Cleveland to raise cash rather than try to compete with larger wireless providers such as AT&T Wireless Inc. or Verizon Wireless Inc.
Cablevision holds the wireless licenses via a 49.9 percent stake in private Northcoast Communications. The venture is managed and 50.1 percent-owned by John Dolan, nephew of Chairman Charles Dolan. |
