2nd UPDATE: Cablevision Board Approves MSG Spinoff; 2Q Net Falls
31 July 2009 - 2:39AM
Dow Jones News
Cablevision Systems Corp.'s (CVC) board approved plans to spin
off its Madison Square Garden and related assets, like the New York
Knicks and Rangers sports teams, by year's end as the
cable-television company looks to focus on its core operations.
The announcement, which came as Cablevision announced in-line
second-quarter results, lifted company shares by 8.29% recently to
$20.50 as investors applauded the separation of what some
considered a trophy asset and drain on CVC's results.
The tax-free spinoff, which remains subject to regulatory and
final board approvals, would distribute to Cablevision shareholders
a share of MSG for each share they hold of the parent, and the
dual-class share structure that keeps control over the media and
entertainment conglomerate in the hands of the Dolan family will
remain in place.
Hank Ratner, who oversees the MSG operations, will head the
spinoff, serving as chief executive while remaining vice chairman
of Cablevision. James Dolan, who has been said to have an affinity
for the company's sports and music venues, will be executive
chairman of the public MSG while remaining chief executive of
Cablevision. His father, Charles Dolan, will remain chairman of
Cablevision.
Sanford Bernstein analyst Craig Moffett said the move is a
"clear positive" for investors, even if it falls short of other
more ambitious restructurings.
"It will spin off a hard-to-value and complex asset and shine a
spotlight on the remarkable free cash flow generation of the cable
business," Moffett said. "What it doesn't do is change what is
still a problematic ownership structure at this company."
Investors have complained about the Dolans investing cash flows
from the company's industry-leading cable business into MSG's
assets - including the newly renovated Beacon Theatre in Manhattan
or pricey salaries for athletes - which have done little to drive
returns for shareholders.
The spinoff plan comes as Madison Square Garden begins a
renovation that executives have already acknowledged will cost more
than the planned $500 million. The company, though, has said the
project will be funded solely through MSG.
"We believe that the combined value of [Cablevision's] assets
hasn't been fully realized, and that this transaction will be
beneficial to shareholders as both Cablevision and MSG freely
pursue their own individual business plans," James Dolan said in a
press release.
The company reiterated it isn't considering the sale of MSG or
any of Cablevision's business at this time.
Gregg Siebert, executive vice president of Cablevision, said on
a conference call that the company doesn't anticipate adding debt
to MSG's balance sheet, but he's confident the business could
shoulder more debt if need be.
Moody's Investors Service recently raised Cablevision's credit
ratings, saying a spinoff would simplify the company's business
model and reduce volatility in operations and capital
requirements.
Meanwhile, Cablevision said its second-quarter earnings fell
8.1% on hedging losses, which more than offset rising sales.
It posted income of $87 million, or 29 cents a share, down from
$94.7 million, or 32 cents a share, a year earlier. The latest
results included a $15.9 million loss on derivatives contracts,
while the prior year's included gains on derivatives and swap
contracts.
Revenue increased 9.8% to $1.88 billion. Analysts polled by
Thomson Reuters expected per-share earnings of 29 cents and revenue
of $1.88 billion.
At Cablevision's telecommunications business, by far the
company's largest, revenue rose 5% and earnings grew 15%, driven by
higher numbers of Internet and voice customers. Basic video
subscribers fell 1.2% from a year earlier, while Optimum Online
high-speed data customers grew 4.5%.
At the MSG business, revenue edged down 0.9% as its operating
loss widened. Cablevision's Rainbow unit - which includes cable
channels such as AMC and IFC - posted a 5.3% gain in revenue as
income jumped 61%, as cable networks continue to be a rare bright
spot in the media industry.
Cablevision finished the quarter with $11.8 billion in debt - a
prime concern for investors since the global financial crisis shook
Wall Street.
"The bigger concern is making sure we get our maturity schedule
in order, so we're confident we can effectively refinance," Siebert
said. "We're confident we can refinance today, but it would be
prudent for us" to explore refinancing some debt scheduled to
mature in 2011, 2012 and 2013 as interest rates become more
attractive.
-By Nat Worden, Dow Jones Newswires; (212) 416-2472;
nat.worden@dowjones.com
(Kerry Grace Benn contributed to this report)