Dolans Down for Now, But Not Out

Analysts See Ways for Dolan Family to Take Another Shot at Cablevision Systems

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

The attempt by Cablevision chairman Charles Dolan and his son, 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 one week before the vote, 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 Investors analyst Chris Marangi said 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 added.

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, said their outlook as a long-term investor is focused on the operations and they are not speculating about another bid. However, Keeling noted 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 that 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.

Marangi said investors still aren’t comfortable with the increased competition in the industry, especially in Cablevision’s footprint where Verizon Communications is making an aggressive push with its FiOS TV. “Based on the fundamentals, Cablevision stock is still undervalued versus its peers,” he added.