Dissent in the ranks

4 May 2007 By David Vise

Gamco and T Rowe Price say the Dolans $36 per share offer is too low. They threaten to block the deal unless they get upwards of $50. But that figure is based on generous assumptions. Other investors seem ready to approve the deal the stock is trading just shy of $36.

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Cablevision Systems Corporation agreed to be bought by the Dolans for $36.26 a share, or $22bn, this week.

Mario Gabelli, who owns 9% of Cablevision's stock, believes it is worth $48 per share. He puts a value of $18bn, or 10 times 2007 ebitda, on the Long Island cable system. He adds $3bn for Cablevision's Rainbow Networks, a multiple of 10.5 times ebitda. He values the New York Knicks and New York Rangers at $700m based on comparable sales; adds $600m for real estate air rights above New York's Penn Station, and $700m for the MSG and Fox New York sports channels. He adds $2.4bn, or 6 times ebitda, for Cablevision's fledgling phone business. Add it up, subtract pro forma yearend debt of $10.2bn and Gabelli's pegs the value at $14bn. Divide that by 292m shares, and he arrives at $48.

T Rowe Price, which holds 5%, claims the cable business alone is worth $40, or a robust 16 times 2008 ebitda of $2.50ashare. The firm justifies this based on Long Island's attractive demographics. Throw in $11 to $13 for the rest and T Rowe Price come up with $51 to $53.

Under Delaware law, if 10% of shareholders wish to hold onto their stakes, they can do so and ask a court to derive a valuation. Gabelli has used this approach successfully before and is considering it with Cablevision.

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