Diller under the Rainbow
Bid for $4.2 billion could give the USA Networks mogul a much larger cable palette
By John M. Higgins -- Broadcasting & Cable, 12/31/2000 7:00:00 PM
After years of courting Cablevision Systems Corp. Chairman Chuck Dolan, Barry Diller may start 2001 with a prize: ownership of Rainbow Media's entertainment networks.
Industry executives said that Diller's USA Networks Inc. is in the final stages of negotiations for Rainbow, offering $4.2 billion for the operation, or an average of $28 per subscriber. Though the companies have generally concurred on price, they are still working out what blend of cash, USA stock and assumed debt USA Networks will cough up.
That's tenuous territory in any deal, but especially so with Dolan, who is widely regarded as a difficult negotiator who often bumps up his asking price in the midst of negotiations. "With Chuck it's always 50-50 until he actually cashes the check," said one cable executive familiar with the talks. The executives also said that another bidder pushed to the sidelines may reappear.
A deal would significantly enlarge Diller's cable network portfolio, giving him control over American Movie Classics and its women-targeted spin-off, WE ( which until recently was called Romance Classics); plus artsy channel Bravo and movie net Independent Film Channel. Although none of those make an obvious fit with Diller's USA Network, Sci-Fi Channel and Home Shopping Network, Diller has sought to buy parts of Rainbow for more than two years.
Diller contends that arts programming has been neglected or executed poorly and that he can carve a niche. Frustrated in buying Bravo, Diller last year acquired startup digital cable network Trio from the Canadian Broadcasting Co. and a partner. He had been planning to use that channel as a pop-entertainment platform.
Spokesmen for Rainbow and USA would not comment on Diller's offer.
Other suitors for the networks include Viacom, Comcast and MGM, but all were on the sidelines last week, the executives said.
"That's a big number," said an executive of one media company that had studied Rainbow. At $4.2 billion, USA would be paying a huge 24-26 times estimated running-rate cash flow.
USA could handle the price. Its $1.3 billion sale of its TV stations to Univision last month should give USA Networks $900 million or so after taxes. The company is debt-free and could readily handle at least another $3 billion against its existing operations, plus borrow against Rainbow.
Dolan and his son, Cablevision President James Dolan, put Rainbow on the auction block after BET Holdings scored a $2.9 billion takeover deal from Viacom. The Dolans have for five years been planning to simply create a tracking stock around Rainbow and were scheduled to finalize that deal in November. But watching BET get 22 times cash flow prompted the Dolans to test the waters for a sale.
A Rainbow's hues
| Network | Launched | Subscribers (in millions) |
|---|---|---|
|
AMC |
1984 |
67.0 |
|
Bravo |
1980 |
40.1 |
|
IFC |
1994 |
11.5 |
|
WE |
1997 |
19.4 |
|
Source: Broadcasting & Cable Research |
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