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Dolans Down for Now, but Not Out

10/26/2007 08:00:00 PM Eastern

Shareholders sunk the bid by the Dolan family to take Cablevision private last week, but that may not be the end of this long and contentious story.

The attempt by Cablevision Chairman Charles Dolan and his son and company CEO James Dolan to buy out Cablevision for $36.26 per share didn’t pass muster with big institutional investors such as Mario Gabelli’s GAMCO Investors and T. Rowe Price, which voted against the deal. But the long history of the Dolans’ quest to own the company, starting with their bid in June 2005, has some investors wondering if they will be content to just walk away.

The Dolans put a positive spin on the defeat. In a statement, they called it a “vote of confidence for the prospects of Cablevision,” and a week before the vote CEO James Dolan issued a statement that he was ready to lead Cablevision into the future as a public company should the bid fail.

The conventional thinking is the poor state of the debt markets will make it very difficult to line up financing for another buyout attempt, but GAMCO Investor analyst Chris Marangi says that’s not necessarily the case. “There are things they can do structurally with the deal even at $36.26, such as allow shareholders to participate in the deal, bring in third party equity or open it up to auction,” he says.

In the past the Dolans have said they are not open to these options.

Portfolio manager Louise Keeling of Marathon Asset Management, which opposed the deal, says their outlook as long-term investor is focused on the operations and they are not speculating about another bid. However, Keeling notes that a share repurchase through a Dutch auction would provide an option for those investors that wanted out at $36.26 and effectively increase the Dolans’ stake in the company.

Investors that vetoed the deal felt the offer price undervalued the company’s assets. With the bid off the table, many expect the stock to rise in the long term even if it slips lower in the near term as it did after the vote. GAMCO Investors analyst Chris Marangi says investors still aren’t comfortable with the increased competition in the industry, especially in Cablevision’s footprint where Verizon is making an aggressive push with its FiOS TV. “Based on the fundamentals, Cablevision stock is still undervalued versus its peers,” he says.

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