Cablevision Systems Corp. said it would redeem all outstanding shares of its
Rainbow Media Group tracking stock, in effect folding the programming assets
back into the parent company.
In a press release Monday morning, Cablevision said it would redeem the RMG
shares in exchange for 1.19 shares of Cablevision NY Group stock Aug. 20. Mellon
Financial Corp. is the transfer agent for the deal.
The MSO declined further comment.
At Cablevision's closing price of $8.01 per share Aug. 2, the deal works out
to $9.60 each for RMG shareholders -- a discount to their closing price of $9.90
Aug. 2.
Investors appeared to be voting with their feet on the proposed deal, driving
down Cablevision shares to $6.80 (down $1.21) and RMG shares to $8 (down $1.90)
in Monday-morning trading.
'We believe RMG shareholders will be disappointed to be taking shares of
arguably the most leveraged cable operator (perhaps behind Adelphia
[Communications Corp.]) at a discount to the current trading spread between
[Rainbow] and [Cablevision],' Janco Partners Inc. analyst Matt Harrigan said in
a research note.
RMG includes Cablevision's national programming assets -- American Movie
Classics, WE: Women's Entertainment, Bravo, The Independent Film Channel and
MuchMusic USA. The unit also includes interests in five regional sports networks
-- Fox Sports Net Ohio, Florida, Bay Area, Chicago and New England.
Cablevision spun off the Rainbow tracker March 30, 2001, in order to extract
value out of the programming assets. The shares opened on the New York Stock
Exchange at $20 apiece and climbed as high as $29.06 each in their short
tenure.
Cablevision gave no reason for the decision to redeem RMG, but Harrigan
believes it could be a step in monetizing the Rainbow assets, possibly selling
them to Metro-Goldwyn-Mayer Inc.
MGM owns a 20 percent nonvoting interest in AMC, WE, Bravo and IFC, which it
purchased in February 2001 for $825 million in cash.
General Electric Co.'s NBC television unit also owns 22.5 percent of RMG.
Cablevision is facing a $550 million to $1 billion funding shortfall in 2003,
which the sale of the networks could address.
The company has tried to sell Rainbow in the past -- just prior to issuing
the tracker, it initiated an auction for the assets that attracted such heavy
hitters as USA Networks Inc., Viacom Inc., NBC, Comcast Corp. and Liberty Media
Corp.
But none of the interested parties was willing to pay Cablevision's $4
billion asking price for the networks. Instead, Cablevision decided to do the
MGM deal.
News Corp., which owns the remaining interest in the regional sports
networks, may end up being a buyer of those, as well. It has an option to put
its interest in the sports network to Cablevision in December.
