Cablevision says to explore spin-off, dividend

By Yinka Adegoke

NEW YORK (Reuters) - Cablevision Systems Corp said it will hire investment banks to evaluate spinning off at least one of its businesses, among other strategies including repurchasing stock or initiating dividend payments.

The news sent Cablevision shares up as much as 8 percent on Tuesday, coming days after Chief Executive Jim Dolan said the cable company might explore options to boost its share price.

Tom Eagan, analyst at Collins Stewart, said a likely scenario was for Cablevision to spin off Rainbow Networks as a separate publicly listed content company. The unit, which owns cable networks such as AMC and IFC, was augmented by Cablevision's recent acquisition of the Sundance Channel and Newsday newspaper.

Liberty Media Corp Chairman John Malone has frequently been cited as a potential buyer of Rainbow, but the recent success of AMC's "Mad Men" series has raised the possibility of interest from other buyers.

"There are different potential buyers; NBC Universal has a proven interest in buying cable networks," said Eagan.

NBC Universal, which is 80 percent owned by General Electric Co and 20 percent by Vivendi, was not immediately available for comment, while Liberty Media declined to comment.

Cablevision also owns sporting teams and venues including the New York Knicks basketball team, Madison Square Garden and Radio City Music Hall, but it is not expected these assets will be put up for sale.

The company said its board authorized it to "take all actions necessary or desirable to evaluate and establish a policy with respect to regular quarterly dividends or stock buybacks as promptly as practicable" and "explore the spin-off of one or more businesses and other potential strategies."

Major U.S. cable companies have until recently not paid out regular dividends as management has focused on investing cash in upgrading their cable systems to offer extra services, such as digital TV, high-speed Internet and phone.

But in February, the largest U.S. cable operator, Comcast Corp, reinstated a dividend after pressure from activist shareholders unhappy with returns on its stock.

Time Warner Cable Inc, the second-largest U.S. cable operator, has said it will pay a special $10.9 billion dividend to shareholders of record as part of its spin-off from parent Time Warner Inc later this year.

Cablevision paid a $3 billion special dividend in April 2006.

Cablevision may also try reducing its outstanding float with a share buyback even as its free cash flow growth promises to accelerate with falling capital expenditures. Citi analyst Jason Bazinet said last week he expects Cablevision to generate $2.6 billion in untaxed free cash flow between 2008 and 2010, well above his original forecast of $1.1 billion.

Bazinet said the raised cash flow would allow Cablevision to buy back up to 35 percent of its shares in three years.

Last October, the Dolan family, which controls Cablevision, offered to take the New York cable operator private for $36.26 a share, but the deal was rejected by shareholders, who deemed the price too low. The likelihood of another attempt is currently thought unlikely due to the ongoing credit crunch.