Shareholders Reject Dolans’ Bid for Cablevision
By Mark Harrington, Newsday, Melville, N.Y.
Oct. 25–Shareholders’ unsurprising rejection of the Dolan family’s latest offer to take Cablevision Systems Corp. private nevertheless sent a shiver through Wall Street yesterday, as the stock lost $1.04 and analysts predicted naysayers might regret their decision.
At a tightly scripted special meeting at Cablevision headquarters yesterday in Bethpage, chief executive James Dolan gave no hint of an alternative plan beyond a readiness to “continue as a public company.” He said he viewed the rejection of controlling Dolan family’s $10.6-billion offer as a “very positive event.” He called it a “vote of confidence in the prospects of Cablevision, its management team, its 20,000 employees and the industry’s future.”
But there were differing opinions on Wall Street and among local investors about what the future may hold.
Chris Marangi, portfolio manager for Gamco Investors, which owns 8.5 percent of Cablevision shares and whose chairman, Mario Gabelli, had been the most vocal opponent of the deal, said, “We’re happy to remain public shareholders of the company.” For now, he recommended, “It’s back to basics” for Cablevision.
Marangi pointed to the company’s positive free cash flow and “a lot of opportunities,” including a possible follow-up Dolan offer or a sale to Time Warner Inc. or Comcast Corp. The Dolans have hinted at no new offer.
Gabelli wasn’t going for the argument that Cablevision will plummet based on competition. “We think you’ll double your money on cable stocks over the next five years, notwithstanding Verizon,” he said last night.
John Linehan, portfolio manager for the T. Rowe Price Value Fund, which owns a 5.7 percent stake, advised against reading too much into the Dolans’ failure. And though the Dolans “clearly have been rebuffed,” he noted they have come back with new offers twice before.
Linehan said he believes competitive pressures are already built into Cablevision’s share price, and he expects the company to get a boost by exploiting new business opportunities and slowing down capital spending, expanding free cash flow.
Other analysts, some pointing to encroachment by Verizon Communications Inc. on Cablevision’s video turf, weren’t so confident.
Institutions that rejected the offer “should be careful what they’re wishing for because competition is coming in, and there’s going to be more of a video threat,” said Greg Gorbatenko, a telecom and media analyst who tracks Cablevision for Jackson Securities in Chicago. “People are just starting to realize that.”
Gorbatenko said he doesn’t expect the Dolans to return with a new offer anytime soon — and he speculated that continued erosion of the stock could provide ammunition for a push to sell off some assets.
“I don’t think shareholders did themselves any favors today, and it clearly showed up in the stock,” agreed analyst April Horace, who covers the industry at Janco Partners. “Thirty-six dollars looks like a good deal. I don’t know what investors were thinking.”
But at least one Cablevision shareholder at yesterday’s meeting had no regrets about voting his shares against the deal. “I believe the Dolan family is trying to steal the company,” said Ronald Steigman of Hauppauge, who said he owns 1,000 shares. “All these assets are worth a lot of money. For the Dolans to offer $36.26, I think, is an insult to stockholders.”
He compared it to going into a restaurant, eating a $100 meal and paying $10 for it. Steigman said investors shouldn’t budge for anything less than $50 a share from the Dolans.
Representatives for institutional shareholders T. Rowe Price and ClearBridge Advisors Llc, the largest non-Dolan stakeholder, declined to comment on yesterday’s vote, other than to confirm they voted their shares against the deal.
While Horace agreed it is unlikely the Dolans will make a new offer soon, she expects them to chalk this one up to experience in considering any future offer.
“The Dolans are going to sit back and look at what they offered and why shareholders turned it down,” she said. “I don’t expect them to come back in a week with a $40-a-share offer.”
To the contrary, some even looked at the offer against yesterday’s stock drop in suggesting a future offer could be below the failed $36.26.
“I would expect a rocky road for the stock in the future,” said Joseph Bonner, who tracks Cablevision at Argus Research in Manhattan. But he didn’t rule out a plan B from the Dolans.
“I don’t think anything’s going to happen tomorrow,” Bonner said, “but with the Dolans you never know.”
One analyst, who asked not to be identified because he had not yet issued comments on the buyout’s failure, said the overarching message of the Dolans’ offer and their statement after its failure is “they want to stay in control.” For that reason, he doesn’t expect any type of sell-off of cable assets. He expects the family will bide its time for a year or more to gauge market conditions and improve Cable-vision’s business prospects.
“I don’t expect any change of course at this point,” he said.
OF INTEREST
In the early 1970s, Cablevision founder Charles Dolan also started Home Box Office, cable TV’s first premium programming service.
Tuesday’s closing Cablevision stock price $31.86
Yesterday’s closing price $30.82
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