It is no surprise that the Dolans are trying to take Cablevision Systems private. Aside from their personal payoffs, they yearn to escape the harsh cries of public investors. Going private means no more nitpicking by all those hedge-fund kids questioning every dollar of capital spending. No more flood of calls every time the stock swings a couple of eighths of a point.
However, if they succeed, Chairman Chuck Dolan and his son, President Jim Dolan, would lose something the company desperately needs: discipline.
Despite the intense scrutiny of public shareholders and the ever present specter of securities regulators, Cablevision has long been one of the most erratically managed companies in media. Imagine the possibilities if the Dolans no longer face those restraints.
The most recent scandal was the disclosure that Cablevision cut sweet deals for insiders by backdating stock options; it even issued options to an executive after he died.
Then, of course, there was the bitter fight between the two Dolans over failed satellite-TV venture Voom, along with the crazy last-minute $16.5 billion bid to buy Adelphia Communications. The list goes on.
The Dolans proposed to buy out public shareholders at $27 per share. That values the company at $21.8 billion, and the company’s equity at $7.8 billion. Because the family already owns 22.5% of the stock, buying out public shareholders will cost them only $6 billion.
They made a similar bid in 2005 but scrapped it after a committee of independent directors deemed it unfair to shareholders (other than the Dolans, of course) and demanded they raise the offer. That undoubtedly will happen this time, too.
Why go private? The bid means they can buy the systems at around $4,400 per subscriber or 7.5 times annual cash flow. A financier at one major cable operator says the properties would probably be worth $6,000 or 10 times cash flow in an open auction.
However, that’s not the motive the Dolans cite. With telco Verizon planning to bring video services to Cablevision’s metro New York turf, the Dolans told the board the “fiercely competitive environment” requires management that is “not constrained by the public markets’ constant focus on short-term results.”
That outside pressure can definitely be a burden. Cox Communications and Insight Communications have gone private in recent years for the same reason. Both companies also saw far more value in their cable systems than investors reflected in the stock prices.
However, there are benefits to the cumbersome disclosure rules designed to protect outside investors. The financial reports, earnings conference calls and investor conferences expose companies’ inner workings. This makes it harder for corporate officials to hide, as they say, “material events” and forces the company to go through a regular, thorough examination.
Cox President Pat Esser wouldn’t specifically discuss Cablevision, but he sees great value in the cadence dictated by the quarterly-earnings reporting process. Before Cox went private in 2004, each financial release was preceded “by weeks of preparation where you ask every tough question you can ask of yourself,” Esser says. He values it so much that Cox has essentially replicated the quarterly call internally, instead presenting to officials at parent company Cox Enterprises. “You have to make sure, as leader of a private company, you don’t lose that.”
Perhaps the Dolans won’t. After all, despite all the corporate missteps, Cablevision COO Tom Rutledge has made the systems the best-performing in the cable business. But the Dolans will need to be triply careful if they actually go private: The weird stuff doesn’t always stay private for long.