Is The Dolan Bid For Cablevision Holding Down Its Stock Price?

Most of the time, takeover bids boost your stock price - but in the case of Cablevision (CVC), the opposite may be true.

On October 9, the Dolan family offered to take Cablevision private at $27 a share. (The Dolans already own 24% of the company’s stock, and via super-voting shares exercise control over the board.) Richard Greenfield, an analyst at Pali Research, notes that the stock is up only 9% since the deal was launched, badly lagging behind Comcast (CMCSA), which is up 14%, Time Warner (TWX), up 19%, and Charter (CHTR), which is up 85%.

In a research note Friday, Greenfield notes that Cablevision now trades at a comparable EBITDA multiple to Comcast, and trades at a discount on a free cash flow basis, “despite stronger earnings growth, more valuable underlying systems and a strong likelihood of a Time Warner Cable takeover attempt over the next 12-18 months.”

Greenfield asserts that the stock deserves to get a premium valuation - ergo, he raised his price target on the stock Friday to $33.50, from 30.

“With the current Dolan family offer of $27 on the table, one might view raising our target price to $33.50 as illogical,” he concedes. “However, we believe that CVC shares would already be trading north of $30-$31 (we could argue for a $33.50 value today) if the Dolans were not trying to take the company private at only $27.”

He says that the underlying strength of the cable industry “increases our confidence that it would be virtually impossible for the CVC special committee to approve a privatization bid of less than $31-$32.”

Greenfield puts the probability that the Dolans will acquire the company at $27 a share at under 10%. And he adds that some resolution to the situation could happen soon:

“We cannot imagine the special committee will allow the Dolans to ‘drag its feet’ for that much longer, implying that there is the ability to generate solid returns in a fairly short time-frame.” he writes.

The weirdest part of this story might be the idea that the stock will have more upside if the Dolans simply give up their acquisition bid.

“While upside of more than 7%-10% from current levels may only be possible if the Dolans walk away from their offer to take CVC private (remember it wouldn’t be the first time that happened), we cannot help but feel as if every passing day increases the chances that the Dolans will walk away.”

Cablevision rose 5 cents Friday to $28.99.

CVC 1-yr chart