Gabelli targets Cablevision unit sale, not breakup
NEW YORK (Reuters) - Cable television operator Cablevision Systems Corp (CVC.N) should sell one of its units to raise cash for an aggressive stock buyback rather than break up the whole business, a major shareholder said on Friday.
Mario Gabelli, whose Gamco Investors Inc (GBL.N) owns about 8 percent of Cablevision's share float, told Reuters he and other major stakeholders will discuss their plans with management in a series of meetings from Monday to Wednesday.
The top four external shareholders -- Gabelli, T Rowe Price, ClearBridge Advisors (LM.N) and London-based Marathon Asset Management -- jointly own about 100 million Cablevision shares, or about a third of the float, and will all meet with Chief Executive James Dolan and other management.
"They realized that the stock is going down and shareholders like myself were getting very concerned by their corporate governance so they agreed for me to squire the management around to meet with institutional investors such as our clients," Gabelli said in an interview.
Cablevision's shares have risen 25 percent since management said last week it was exploring options to close the gap between its intrinsic value and its share price. But even at $28 a share, it is still below a $36.26 per share buyout offer by the Dolan family last October -- its fourth such offer.
At the time, Gabelli led a revolt by major shareholders against the Dolans' offer, saying Cablevision's assets were worth about $50 a share.
Cablevision owns cable networks like AMC and WE under its Rainbow Networks unit. It operates primarily in the New York metropolitan area. Its MSG unit owns venues like Madison Square Garden and Radio City Music Hall as well as sporting teams like the New York Knicks basketball team and the New York Rangers hockey team.
Most industry watchers believe Rainbow would be a likely asset for sale if any are sold. Analysts value the division at about $4.5 billion.
"They should consider selling one of their assets, even if it's at a slight discount to what they would get in a normal acquisition market, because their stock is so far below what they're worth they would use that extra cash to buy back more stock," Gabelli said.
He said he does not see a wholesale break-up of the company as the best way to derive maximum return. He said instead the priority should be an aggressive share buyback.
"What they should be doing is using their cash flow to buy back stock," Gabelli said.
After several years of heavy capital investment to roll out digital video, high-speed Internet and digital phone services, Cablevision is now spending far less and thereby generating more free cash flow.
But investors have been concerned by Cablevision's unexpected moves, such as its acquisition of the Newsday newspaper in May for $650 million and this month the appointment of two more Dolan family members to the board.
The decision by Cablevision, controlled by the normally uncommunicative Dolan family, to meet investors has surprised Wall Street and it follows a mini-campaign by Gabelli to improve Cablevision's corporate governance practices.
"We voted against them going private at $36 because we didn't like the mechanics of that deal. They didn't shop it," Gabelli said, referring to the Dolans' reluctance to discuss raising the price or promising a share in future benefits with current shareholders.
He said he still thinks the company is worth $50 a share or more, but is not interested in seeing Cablevision broken up just to achieve the price target as he is long term investor.
"We have followed cable for 35 years, we have a thorough understanding of the dynamics," Gabelli said.
(Editing by Braden Reddall)
