Cablevision: Increasing Chance of Selling Rainbow Cable Assets

Oppenheimer’s Thomas Eagan Friday morning upgraded his rating on Cablevision (CVC) to Buy from Neutral.

Eagan thinks the rejection of the Dolan family’s $30 a share takeover bid increases the odds that the company will structure, possibly selling its Rainbow programming assets.

“With CVC trading at a discount to the recently raised (but rejected) $30 bid, we see more upside reward than downside risk,” he wrote in a research note. “Additionally, the Dolan family has clearly shown that it is interested in changing the ownership structure of the cable and Rainbow assets. It is just a matter of time, in our opinion. Our sum of the parts analysis translates to a target of $34.”

Eagan thinks the company could decide to sell the Rainbow assets to Liberty Media (LBTYA):

With the $30 bid rejected, CVC has less reason to keep Rainbow as part of the company. Keeping the assets together (in that bid) was expressly meant to simplify the offer for the Board. Perhaps more importantly, we expect John Malone’s Liberty is looking to continue to acquire programming assets. We believe CVC’s regional Fox sports channel and the cable networks could be of interest. We value the three cable networks [the AMC, WE and IFC channels] at $2.45 billion, or 9x their 2007E OCF [operating cash flow], a conservative multiple. A 12x multiple would add more than $2 per share to our valuation.

Eagan contends there is “little downside risk” given the valuation peg provided by the Dolan bid at $30.

Cablevision Friday was up 7 cents at $29.61.

CVC vs. LBTYA 1-yr chart