Setbacks Mount at Cablevision

[rtt2]

Setbacks Mount at Cablevision
By George Mannes
Senior Writer
9/28/2004 2:22 PM EDT
URL: http://www.thestreet.com/tech/georgemannes/10185118.html

Cablevision (CVC:NYSE) said Tuesday that it would miss the deadline it had previously set for spinning off its satellite TV service.


But Cablevision CEO Jim Dolan said Tuesday that the spinoff was still on track. "Yes, it is going to happen," Dolan told the audience at Merrill Lynch's Media & Entertainment conference. "We believe we are very close to actually achieving the spin."

Cablevision's shares rose 33 cents Tuesday to $19.78. On Monday, shares in the Long Island-based cable operator fell $1.42, or 6.8%, in the wake of a Friday night disclosure that three executives, including the company's acting principal accounting officer, had resigned their posts.

In a filing at the Securities and Exchange Commission Tuesday, Cablevision said it expected to complete the spinoff for its Rainbow Media Enterprises division in the fourth quarter. Previously, the company had said it expected that the deal turning Rainbow into a separate, publicly held company would be completed in the third quarter, which ends Thursday.

Rainbow includes not only Voom, Cablevision's fledgling satellite service focusing on high-definition television, but also the American Movie Classics, The Independent Film Channel and WE: Women's Entertainment programming services and the Clearview Cinemas movie theater chain.

As Cablevision noted in its filing, the company has already received a ruling from the Internal Revenue Service indicating that the spinoff will qualify as a tax-free transaction, and has completed the financing plan for Rainbow. As Cablevision has pointed out before, the company said the spinoff still requires the SEC to declare the relevant paperwork effective, as well as final approval from Cablevision's board.

Wall Street has generally been pessimistic about the outlook for Voom's success, with analysts such as Sanford C. Bernstein's Craig Moffett arguing that the faster Voom goes out of business, the better it will be for Cablevision shareholders.

With Cablevision giving no reason last week for the executive resignations, outsiders filled in the blank with explanations ranging from innocent to ominous. One theory was that incoming CFO Michael Huseby was engaging in the run-of-the-mill guard-changing that is common among incoming corporate executives, while another linked the resignations to an SEC inquiry that followed Cablevision's disclosure in June 2003 of accounting irregularities in its programming unit.

After talking with Cablevision personnel, UBS analyst Aryeh Bourkoff reported Monday that the resignations were unrelated to the impending Rainbow spinoff. "Also, while CVC remains under a formal SEC investigation, the SEC did not require that these resignations occur, according to the company," reported Bourkoff, who has a buy rating on Cablevision's stock.

Bourkoff noted that at Huseby's previous employer, Charter (CHTR:Nasdaq) , he helped navigate the company through its "clearance" by the SEC. "We believe Huseby may be following a similar strategy at Cablevision, in order to work diligently toward an SEC clearance of CVC," wrote Bourkoff.

A Cablevision spokesman declined to comment Tuesday.

 

[PGHammer]

*Pure* vs. *Impure* cable plays

Setbacks Mount at Cablevision
By George Mannes
Senior Writer
9/28/2004 2:22 PM EDT
URL: http://www.thestreet.com/tech/georgemannes/10185118.html

Cablevision (CVC:NYSE) said Tuesday that it would miss the deadline it had previously set for spinning off its satellite TV service.


But Cablevision CEO Jim Dolan said Tuesday that the spinoff was still on track. "Yes, it is going to happen," Dolan told the audience at Merrill Lynch's Media & Entertainment conference. "We believe we are very close to actually achieving the spin."

Cablevision's shares rose 33 cents Tuesday to $19.78. On Monday, shares in the Long Island-based cable operator fell $1.42, or 6.8%, in the wake of a Friday night disclosure that three executives, including the company's acting principal accounting officer, had resigned their posts.

In a filing at the Securities and Exchange Commission Tuesday, Cablevision said it expected to complete the spinoff for its Rainbow Media Enterprises division in the fourth quarter. Previously, the company had said it expected that the deal turning Rainbow into a separate, publicly held company would be completed in the third quarter, which ends Thursday.

Rainbow includes not only Voom, Cablevision's fledgling satellite service focusing on high-definition television, but also the American Movie Classics, The Independent Film Channel and WE: Women's Entertainment programming services and the Clearview Cinemas movie theater chain.

As Cablevision noted in its filing, the company has already received a ruling from the Internal Revenue Service indicating that the spinoff will qualify as a tax-free transaction, and has completed the financing plan for Rainbow. As Cablevision has pointed out before, the company said the spinoff still requires the SEC to declare the relevant paperwork effective, as well as final approval from Cablevision's board.

Wall Street has generally been pessimistic about the outlook for Voom's success, with analysts such as Sanford C. Bernstein's Craig Moffett arguing that the faster Voom goes out of business, the better it will be for Cablevision shareholders.

With Cablevision giving no reason last week for the executive resignations, outsiders filled in the blank with explanations ranging from innocent to ominous. One theory was that incoming CFO Michael Huseby was engaging in the run-of-the-mill guard-changing that is common among incoming corporate executives, while another linked the resignations to an SEC inquiry that followed Cablevision's disclosure in June 2003 of accounting irregularities in its programming unit.

After talking with Cablevision personnel, UBS analyst Aryeh Bourkoff reported Monday that the resignations were unrelated to the impending Rainbow spinoff. "Also, while CVC remains under a formal SEC investigation, the SEC did not require that these resignations occur, according to the company," reported Bourkoff, who has a buy rating on Cablevision's stock.

Bourkoff noted that at Huseby's previous employer, Charter (CHTR:Nasdaq) , he helped navigate the company through its "clearance" by the SEC. "We believe Huseby may be following a similar strategy at Cablevision, in order to work diligently toward an SEC clearance of CVC," wrote Bourkoff.

A Cablevision spokesman declined to comment Tuesday.

The problem with analyst coverage of CableVision (in fact of cable companies in general) is that *pure* plays (just MSOs or just content) are always treated better than *impure* or *mixed* plays (MSOs that also are content providers or cable/satellite MSOs like CVC).

Let's look at Comcast (NASDAQ NMS: CMCSK/CMCSA). While Comcast does provide *some* content (Comcast SportsNet in the Greater Philadelphia and Baltimore/Washington DMAs, CN8 in the Greater Philadelphia and Baltimore DMAs), they are largely ancillary to their MSO business, and recognized as such, both inside and outside the company (and especially on Wall Street).

However, when Comcast went after Disney, they were roundly savaged, not just by Disney defenders, but by most stock analysts covering the company. Why? Because Disney is not an MSO, and Comcast would become a *mixed* play.

*Mixed* plays inevitably collect bad press, especially when it comes to cable. TWC (formerly AOL Time Warner) had to go so far as changing its *name* because the merger with AOL was so roundly panned (and this was *before* the accounting and other problems with AOL itself became known!).

CVC has *always* been a mixed play, even prior to VOOM's launch, and the lack of purity has *always* had analysts screaming. Four years ago (well prior to VOOM's launch), analysts wanted CVC to divest itself of the content providers and become a pure MSO.

However, CVC sees (and has always seen) one great big nightmare as a pure MSO play; it has fewer subscribers compared to the larger MSOs (read TWC and Comcast), and they are mostly surrounded by Time-Warner. Holding on to those content providers prevents TWC from acquiring CVC (due to agreements still in force dating back to the formation of TWC, well before the merger with AOL), and the analysts' screaming has also kept them out of the arms of Comcast (even though CVC's management has no issues with either Brian Roberts or Comcast, they want to remain an independent company).

What the spinoff od the non-MSO assets appears to be (at least to me) is the surrender of CVC itself (not necessarily the spun off Rainbow Group holdings, including VOOM). The analysts win because CVC will become a pure MSO play, and, with the meltdown of Adelphia, the largest MSO that is not in merger play in one way or another (all forecasting on Adelphia seems to favor a *cherry-picking contest* between Time-Warner, Comcast, and Charter). The analysts want another MSO (a healthy one, rather than the rotting corpse that is Adelphia) in merger play, and CVC, without the content-provider baggage, would be ideal.

 

[Sean Mota]

PGHammer,

this was a good read. Even after the spin-off isn't CVC still connected to the Rangers and Knicks and to some degree to Rainbow programming through Fuse and other cable channels. Also, everything the CVC does technically has to be done through Rainbow Media Facilities. Aren't the Knicks and the Rangers bigger losers of revenues that could also drive down CVC?