Cable Operators

Deadline Drama

4/03/2005 8:00 PM Eastern

March 31 was supposed to be the date when Cablevision Systems Corp. closed at least two chapters in an increasingly bizarre saga — the acceptance or denial of its $760 million bid for the Hudson Rail Yards in Manhattan and whether its struggling Rainbow DBS service would be shut down or transferred to company chairman Charles Dolan.

But in what’s become typical fashion for the Bethpage, N.Y.-based MSO, more questions were raised than resolved last Thursday.

Cablevision lost its bid to build a residential and office complex at the rail yards when the New York Metropolitan Transit Authority voted unanimously in favor of a $720 million bid (including $210 million in cash) by the New York Jets to build a football stadium at the site, seen as an economic threat to Cablevision’s Madison Square Garden arena.

Cablevision was expected to file a lawsuit in opposition to the winning bid, a move that could delay the project for years.

In a statement, MSG said Cablevision’s bid included more cash ($400 million) than the Jets offer.

“It is obvious that the [New York Mayor Michael] Bloomberg fix was in. It’s no wonder that the MTA is in financial crisis when its own board declares that $210 million is worth more than $400 million in cash,” MSG said. “Today’s decision will only serve to galvanize the two-thirds of New Yorkers who are bitterly opposed to spending more than $1 billion in taxpayer money for a football stadium that they do not want.”

The stadium proposal still must win acceptance from the New York Public Authorities Control Board and the Empire State Development Corp.

VOOM DEADLINE, TOO

March 31 was also the deadline for Cablevision chairman Charles Dolan to present a funding plan to continue its fledgling Rainbow DBS direct-broadcast satellite service, better known by its Voom brand name.

At presstime, Cablevision declined comment on the status of Rainbow DBS.

Charles Dolan has said in government filings that he has secured $400 million of funding for the project.

He also filed documents with the Federal Communications Commission to block Cablevision’s proposed sale of Rainbow DBS’ satellite — Rainbow 1 — to EchoStar Communications Corp. for $200 million.

Still to come is the decision on whether to participate in a joint bid for Adelphia Communications Corp., teaming up with leveraged-buyout giant Kohlberg Kravis Roberts and private-equity group Providence Equity Partners on their joint $15 billion bid for the Denver MSO.

Cablevision’s participation could help KKR and Providence Equity pass the clear front-runner in the Adelphia auction — the joint bid of Time Warner Inc. and Comcast Corp., estimated at $17.6 billion.

Cablevision would not comment on a report in The New York Times March 29 that the three were in advanced talks.

But at an industry conference last week, president and chief operating officer Tom Rutledge sent some signals that Cablevision was at least considering expansion.

“We have said in the past that we think that we’ve shown we can take cable assets and be effective managers of them, and generate rapid revenue and cash-flow growth,” Rutledge said at the Banc of America Securities Media, Telecommunications & Entertainment conference in New York. “If we found an opportunity to do that managerially and one that would make sense, we would pursue it. That’s a general statement.”

Earlier during that same conference, Liberty Media Corp., chairman and Cablevision board member John Malone, while not confirming the Times report, said he would endorse a Cablevision bid for Adelphia.

Malone said that combining with Adelphia would give Cablevision needed scale, adding that with 8.4 million subscribers, the combined entity would be beneficial to Cablevision’s programming arm, Rainbow Media Holdings Inc.

“They have content businesses that are powerful in New York, but they don’t really have enough scale to be a major cable player,” Malone said at the conference. “They can certainly exist and have decent results because of the concentrated nature of the market — I don’t think they have to go out of the business. But it may be hard for them in the long run to sustain the same kind of multiple or growth rate.”

Adding Adelphia’s 5.4 million subscribers also would give Cablevision more distribution power to launch new channels, Malone added.

“They’ll suffer more on the content side by absence of scale than they would on the footprint side,” Malone said.

Still, Malone said it was unlikely anyone would be able to trump the Time Warner-Comcast bid.

“I find it hard to believe that anybody can outbid that combination,” Malone said at the conference.

But most analysts puzzled over the possibility of Cablevision’s participation in the Adelphia auction, mainly because it appears to fly in the face of its New York-centric strategy of the past five years.

Cablevision once owned systems in Boston, Cleveland and Kalamazoo, Mich., but sold them in 2000 for a combined $3 billion to focus more on the New York assets.

'MOVED ASSETS AROUND’

Rutledge said that the motivation for selling those systems was receiving additional assets that allowed it to boost its existing New York footprint — it got 125,000 subscribers in six New York counties from AT&T Broadband in the Boston deal — but was not part of a concerted effort to focus solely on New York.

“If you think back what we did with Cleveland and Boston, we really were trading and ended up pretty much with the same overall cable portfolio that we had before we moved the assets around,” Rutledge said. “We thought there was and is an advantage in that and we have been successful in that strategy at Cablevision. And there is more in New York that we would like to have if we could have it. That all depends on the terms — I’m not commenting on deal possibilities.”

Later, Rutledge told reporters that no New York assets are being offered to Cablevision, and he wouldn’t speculate which areas the MSO would desire.

Sanford Bernstein & Co. cable and satellite analyst Craig Moffett wrote in a report that while Adelphia would create synergies for Time Warner and Comcast — mainly because they each have several clusters in common — none of those synergies exist with Cablevision.

STOCK TOOK HIT

For that reason, Moffet wrote that he believes any joint Cablevision bid stands little chance of perservering, adding that reports of its participation “should serve as a sobering reminder of Cablevision’s unpredictability.”

Investors also were displeased about a possible Adelphia bid, driving Cablevision shares down 5.7% ($1.65 each) to $27.35 per share March 29. The stock was priced at $28.05 each in 4 p.m. trading March 31.

Fulcrum Global Partners cable and satellite analyst Richard Greenfield also doubted that a Cablevision bid would pass muster. But he said that if Cablevision were part of the winning bid, it is likely that the other partners would not allow Charles Dolan to retain the super-voting control he has with Cablevision.

“While we believe it is unlikely that Cablevision actually bids and prevails in the Adelphia auction, anything that causes Chuck Dolan to lose voting control of Cablevision is a positive for Cablevision shareholders,” Greenfield wrote.

September