Dolan Family Buyout of Cablevision Unlikely

Cablevision (CVC) shares were lower yet again after more doubts arose about shareholder approval for the Dolan family's $10.6 billion offer for the company. Institutional investors spoke out after Cablevision Chief Executive James Dolan said in a written statement on Tuesday night that the offer for Cablevision won't be raised. ClearBridge Advisors, which owns 10.5% of the common stock, said it would vote against the deal because "...shareholders are (not) being adequately compensated for the expected growth in Cablevision's free cash flow nor the value of the other assets owned by the company."

But even without Dolan's Tuesday night statement, the odds of the buyout price being raised were extremely low because of the higher costs of borrowing money, and competitive threats to the cable sector make it unlikely that the Dolan family would have any financial incentive to boost its bid, according to Citi analyst Jason Bazinet.

Nonetheless, the confirmation sent the stock lower by $1.13, or 3.35%, to $32.57 on heavy trading of 5.1 million shares, with daily average volume usually around 1.3 million shares. And, unless things change before the October 24 shareholder vote, it looks like Cablevision shares can see even more downside. Pali Research analyst Richard Greenfield believes that a dip to $30 is possible, and Bazinet thinks there can easily be a $4 short term decline if the deal doesn't go through.

But with a longer term perspective in mind, most believe that potential upside outweighs any downside. Greenfield, who holds a "buy" rating on the stock, says that as capital spending slows down over the next year with not as many product roll-outs, the free cash flow story will really start to play out, and be the catalyst to lift shares. He has a price target of $47.

Most of the institutions that will most likely vote against the deal, including ClearBridge, Gamco and T. Rowe Price, use similar reasoning in arguing that a $10.6 billion buyout offer is low, and that a fairer valuation of Cablevision would put a bid for a takeover closer to $50.