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Malone Likes Cablevision’s Adelphia Move

3/29/2005 3:11 AM Eastern

Cablevision Systems Corp.’s rumored participation in the auction for Adelphia Communications Corp. is not sitting well with Wall Street, but if it is true, it has one fan in board member and Liberty Media Corp. chairman John Malone.

According to a report in The New York Times, Cablevision is reportedly talking with leveraged-buyout firm Kohlberg Kravis Roberts & Co. and private-equity giant Providence Equity Partners Inc. about joining their bid for Adelphia.

KKR and Providence Equity have submitted a $15 billion, all-cash bid for Adelphia, the Times said, but they would be able to boost that offer substantially if Cablevision were to participate.

That could possibly allow KKR to trump the front-runner in the auction -- a joint bid by Time Warner Inc. and Comcast Corp., estimated to be worth $17.6 billion.

At the Banc of America Securities Media, Telecommunications & Entertainment Conference in New York Tuesday, Malone would not confirm that Cablevision and the private-equity groups were in discussions, but he said he would be behind a combined bid for Adelphia.

Malone said 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 LLC.

“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 would also 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,” he said.

Malone added that he believed that if Cablevision is talking with KKR and Providence Equity, it is more likely that the talks were initiated by CEO James Dolan, rather than chairman Charles Dolan. He said if Charles Dolan wanted to monetize his controlling stake in the MSO, there are better ways to do it than an Adelphia merger.

“If, in fact, the control shareholder is trying to maximize the present value of his assets, he’d probably do what I did and sell out to AT&T or the equivalent,” Malone said, referring to his sale in 1999 of Tele-Communications Inc. to AT&T Corp. “I don’t know if that is the metric that drives the control shareholders here. I think they’re interested in building value and having a great company, but I don’t know that they’re under any pressure to maximize the present value of the assets.”

Wall Street reacted badly to Cablevision’s reported participation, driving the stock down as low as $27.10 per share (down $1.90 each) in early Tuesday trading. The stock was priced at $27.34 (down $1.66) in afternoon trading.

Officials at KKR and Cablevision declined comment. Providence Equity did not return a phone call seeking comment.

In a research report, Sanford C. Bernstein & Co. Inc. cable analyst Craig Moffett wrote that Cablevision’s participation in the Adelphia auction is “puzzling,” mainly because it is virtually devoid of synergies.

The Time Warner-Comcast bid makes sense, Moffett wrote, because those two MSOs have clusters of systems near many of the Adelphia properties. Those clusters don’t exist with Cablevision.

What’s more, Cablevision has a lot on its plate, primarily its $760 million bid for the West Side Rail Yards in Manhattan -- a move to block a proposed stadium there for the National Football League’s New York Jets that could cut into business at Cablevision’s Madison Square Garden arena.

Cablevision has also set a March 31 deadline for Charles Dolan to present his funding plan for struggling HD direct-broadcast satellite service provider Rainbow DBS and its Voom service.

“Today’s report should serve as a sobering reminder of Cablevision’s unpredictability,” Moffett wrote. “But the most that can be said about today’s report is that it simply raises a host of questions. For example, it is even unclear whether Cablevision should be viewed as a buyer (which we expect is likely to be the consensus today) or as a seller (i.e., to KKR and Providence Equity Partners).”

 

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