You hate to throw an auction if your biggest buyer isn't showing up. That's the prospect for Cablevision Systems' auction of its Rainbow Media entertainment networks that had been scheduled for this week. Annoyed that his enthusiasm for the networks is being used against him, USA Networks Barry Diller declared that he won't show up.
Diller has complained to industry executives that he started out in direct negotiations with Cablevision, but Chairman Chuck Dolan exploited his interest to hold an auction for the properties, which include American Movie Classics and Bravo. Executives involved in the bidding said that Diller has now told Dolan that he won't bid at an auction scheduled for next Tuesday, but instead will only participate in one-on-one negotiations.
"I can understand Barry being a little frustrated," said the executive. "He thinks he's being used." Cablevision and USA Networks would not comment.
Diller at one point offered about $4 billion in cash, stock and assumed debt, but is backing away from that number. NBC, which owns about 26% of Rainbow's entertainment and sports operations, has offered a lower bid of approximately $3.8 billion, but is offering shares in its parent General Electric and its own interest in other Rainbow properties.
Dolan started out in a series of one-on-one negotiations, but just before Christmas hired two investment bankers to run an auction. Bids were supposed to be due this Tuesday, but the whole process is now up in the air.
Other suitors, including MSO Comcast, MGM, and conglomerate Viacom, are thinking more in the $3 billion range. Comcast is offering to pay in part by trading systems in the metro New York market that Dolan covets. MGM's controlling shareholder, Kirk Kirkorian, wants to partner with Cablevision, but his combative stance in many business situations makes Cablevision executives as wary of Kirkorian as they are about the value of MGM stock he would use as currency.
But it is Diller who has coveted the networks the most. He first approached Dolan about buying Bravo two years ago and has been circling ever since. 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.
None of those make an obvious fit with Diller's USA Network, Sci-Fi Channel and Home Shopping Network. But 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.
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.