Rainbow reversal - Broadcasting & Cable

Rainbow reversal

Cablevision stalls tracking stock, considers sale
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After five years of studying the plan, Cablevision Systems has suddenly hesitated in its move to create a tracking stock tied to its Rainbow Media, saying it wants to reconsider its options, including selling off all or part of the division.

The MSO had scheduled a shareholder meeting at its headquarters for last Friday morning but abruptly announced a 30-day delay. Although such delays are not uncommon, the company said this one is to allow Cablevision to "evaluate all of its options and alternatives related to the assets."

Vice Chairman Bill Bell wouldn't elaborate on the company's statement. But Wall Street executives said Cablevision's action was spurred by the strong price that Black Entertainment Television is getting from Viacom Inc. With BET selling for $3 billion, $54 per sub and 20 times cash flow, should Rainbow simply sell the networks?

Barry Diller's USA Networks, for example, has coveted Bravo and Independent Film Channel. Struggling studio MGM has repeatedly approached Cablevision about Rainbow, but those conversations are "cold," said one industry executive.

Morgan Stanley Dean Witter analyst Richard Bilotti estimates Rainbow's value at about $3.9 billion.

When Cablevision Chairman Charles Dolan "finalized" the tracking-stock plan in August, it was the most conservative route Cablevision had been studying. It had rejected a sale or an IPO, which could have had a greater financial impact on the company. Rainbow was to have traded separately from Cablevision but would remain fully under the cable operator's control, with the board responsible primarily to Cablevision shareholders.

Cablevision was planning to issue a simple stock dividend, giving investors half a share of what will now be called Rainbow Media Group for each Cablevision share they own. The underlying assets included American Movie Classics and Bravo but not Cablevision's sports networks, Madison Square Garden and Radio City Music Hall.

Cablevision also posted mixed third-quarter results. For the three months ended September, its cable systems increased revenues just 7%, to $448 million-not much top-line growth given the company's push into high-speed Internet service. Recurring cash flow, however, was stronger, rising 10%, to $205 million, to boost cash-flow margin and cross that double-digit-growth threshold all operators seek.

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