Wall Street queries Cablevision interest in Newsday
NEW YORK (Reuters) - Now that Cablevision Systems Corp (CVC.N) has won the bid for Robert Redford's Sundance Channel, investors are turning to another acquisition the U.S. cable operator is angling for: Newsday.
But while Wall Street thinks Redford's independent film network is a good fit for Cablevision, which owns other cable movie networks, investors are challenging the wisdom of its interest in the struggling U.S. newspaper industry.
Cablevision, controlled by the Dolan family, submitted a $650 million bid to Tribune Co for Newsday, topping rival offers from newspaper moguls Rupert Murdoch and Mortimer Zuckerman, a source briefed on the matter said last week.
Yet, although it makes sense for Murdoch's News Corp NWSa.N or Zuckerman's Daily News to buy Newsday, analysts said the daily paper would add little strategic benefit to Cablevision and could actually erode shareholder value.
Investors said they would much prefer the Bethpage, New York-based cable operator to use its cash to issue a dividend or repurchase shares to boost shareholder value.
"One of the best investments any company can make is in its own stock and they have to weigh that against any other opportunities they come across," said Chris Marangi, portfolio manager at Gabelli & Co, which owns about 8 percent of Cablevision.
Cablevision declined to comment.
Gabelli & Co, led by Mario Gabelli, and other shareholders have clashed with the Dolans over management decisions in the past, including the family's attempt to take Cablevision private last year for a price investors deemed too low.
Indeed, the reputation of the Dolans for unpredictable management decisions has prompted Wall Street to figure in a "Dolan discount" on the price of the stock, said analysts.
"I think any time the Dolans do something like this, they risk exposing themselves to the wrath of the dissenting shareholders," said Todd Mitchell, an analyst at Kaufman Bros. "The negative trends in newspaper advertising makes this seem like throwing good money after bad."
Print advertising sales have been falling steadily for several years and dropped nearly 9.4 percent last year, according to the Newspaper Association of America.
While Cablevision and Newsday are both based in Long Island, New York, and could share contacts with local advertisers, analysts question whether Cablevision could ever recoup such an investment in the declining newspaper business.
SLOWER GROWTH
Cablevision's own subscriber growth has weakened in the last year due to stiffer competition from Verizon Communications Inc (VZ.N) and satellite TV operators, as well as the U.S. economic slowdown.
That slowdown has reduced capital expenditure requirements, which boosts free cash flow potentially for acquisitions. Cablevision generated $158.4 million in free cash flow in 2007, compared with $41 million in 2006.
While investors may prefer Cablevision to use its cash on buy-backs, dividends or to pay down debt, the Dolans appear to want to refocus company strategy on areas beyond its cable operations.
On Thursday, Cablevision said it would buy cable network Sundance Channel in a $496 million deal structured primarily as share swap that would be tax free.
"The surprise here is the deal is financially much more palatable than expected," said Craig Moffett, an analyst at Sanford Bernstein.
"But it's still not exactly what Cablevision shareholders signed up for. Investors would still rather get a dividend or share buyback."
Besides Newsday and Sundance, Cablevision, led by Chief Executive James Dolan, has been reported to be considering taking a stake in concert promoter AEG Live. The cable operator also owns Rainbow Networks and Madison Square Gardens units, which house the AMC cable television network, Radio City Music Hall and the New York Knicks basketball team.
Richard Greenfield, an analyst at Pali Research and a long-time critic of the Dolans' management, said it was "impossible" for Cablevision to earn a positive return on a $650 million investment in Newsday.
"We think the company should stay focused on the cable television business," he added.
(Editing by Andre Grenon)
