Cablevision Board Rejects Offer by the Dolans



By ANDREW ROSS SORKIN
Published: January 17, 2007

The board of the Cablevision Systems Corporation rejected an $8.9 billion offer yesterday to sell the company to the Dolans, its founding family.

The rebuff was a rare example of a board standing up to and denying a request by a controlling shareholder.

The rejection by Cablevision’s board, which set up a special committee of directors to review the Dolans’ proposal, is the second time it has refused to sell the company to the family.

In 2005, the Dolans, led by the founder, Charles F. Dolan, and his son James, offered to break the company in two and buy Cablevision’s cable television assets from its public shareholders.

But they were forced to withdraw the offer before the board formally rejected the bid.

The Dolans’ latest effort, though, was much more public and at times it appeared acrimonious.

Rather than withdraw its offer when told it would be rejected, the family increased its bid last Friday by about $1 billion and tried to put pressure on the board by setting a deadline tomorrow, declaring that the proposal was its “best and final” offer.

In rejecting the bid, the board said yesterday in a letter to the family that the offer “does not represent fair value for the company’s public shareholders nor does it contemplate a transaction that is in their best interest.”

It said it had warned the family that it would reject the bid, noting that “indications were given” about the “the inadequacy of the prior proposal” and that the directors had provided “general guidance” about how much the family would need to pay to strike a deal.

A spokesman for the Dolans declined to comment last night.

Yesterday’s decision leaves the company publicly owned and listed, but at the mercy of the Dolan family, which owns 20 percent of Cablevision equity and controls 70.4 percent of the voting power.

With little chance of a sale of the company to anyone else, Cablevision’s future remains clouded. Some analysts last night questioned why the Dolans did not bring in a private equity firm as a partner to allow them to increase their bid further.

Shareholders have worried for weeks that the Dolans would buy the company at a steep discount to its value.

While the Dolans had offered $30 a share, most analysts estimate that the company would be worth at least $40 a share if it were put up for auction. When the Dolan family made its bid, it insisted that it would not sell the company to anyone besides itself.

“It’s a corporate governance victory,” said Richard Greenfield, an analyst at Pali Research, who wrote a note to investors last week titled, “Do Not Let Chuck and Jim Dolan Steal CVC.”

“This is exactly what the independent committee should have done,” Mr. Greenfield said. “The price was not fair for shareholders. If they had put it up for auction, it would have fetched far more.”

In his note, he suggested that the company was worth at least $33.50 a share and said that there was “a strong likelihood of a Time Warner Cable takeover attempt over the next 12-18 months.”

Time Warner has long been mentioned as a potential suitor because Cablevision’s systems, which are centered in New York suburbs, neatly fit into Time Warner’s regional network.

The push by the Dolans comes as enthusiasm for cable companies has rebounded. Only a year ago, investors were concerned that as telephone companies entered the video market, the value of all distribution assets would fall.

But perception has shifted, and many investors now argue that rival services to cable television will materialize slowly and that cable is still the best-positioned competitor to the phone companies and satellite television.

With the recent boom in buyouts led by management, shareholders have become increasingly anxious about whether their interests are being properly represented and whether a board’s links to management might be too cozy.

For instance, when the energy company Kinder Morgan was sold to a group led by its founder, Richard D. Kinder, shareholders were irate about what they considered a sweetheart deal.

The special committee in this case was composed of Thomas V. Reifenheiser, a former media banker at Chase who had represented Cablevision, and a retired Navy vice admiral, John R. Ryan, who is now chancellor of the State University of New York. Both joined the board in 2002, and neither are personal friends of the family.

The committee was advised by Lehman Brothers and Morgan Stanley. Its legal adviser was the firm of Willkie Farr & Gallagher.

I like the part where they sweetened the deal by 1 billion dollars...But the interesting part I think is that Time Warner could make a play for Cablevision..What does that mean for ownership and management of the Knicks..Inquiring minds want to know...

They turned down $1,000,000,000? Hell, I'll take it if they don't want it.