Embattled Cablevision Systems CEO James Dolan is likely to suffer another black eye this Wednesday, with company shareholders expected to reject his fourth and latest attempt to take the cable giant private.
The all-but-certain rejection will add to a string of embarrassments for the company’s combustible leader, following not too far behind a guilty verdict in a sexual harassment suit brought against the company’s Madison Square Garden unit and a second lawsuit on the way from Rangers dancer Courtney Prince.
Not to mention the underwhelming performance of its Knicks and Rangers teams.
But in signaling their intent to vote down the Dolan family’s latest offer, are ClearBridge Advisors, investor Mario Gabelli and a contingent of hedge funds – the supposed smart money – actually being dumb?
“If I were them, I’d take the money and run,” said one source who’s had extensive dealings with the Dolan family.
According to this source and others, by voting down the deal these investors seems to be betting on one of two things – a quick rebound in the credit markets or a sale to rivals Comcast or Time Warner – neither of which is likely to happen for another 12 months or more.
In May, when the Dolans made their latest proposal, which values Cablevision at $22 billion and is highly leveraged with $15.5 billion of debt, cable stocks were up about 10 percent or more from where they are now and the credit market was in a frothy state.
Now, cable stocks are out of favor – with industry leader Comcast’s 12 percent swoon since May 1 serving as exhibit A.
And given the current credit crisis, sources have suggested that Cablevision’s lender banks, which together are on the hook for more than $11 billion in debt financing in the deal, won’t have the appetite to fund another deal at that level for another year or so.
“As much as anything, there’s no more money available,” said a source.
Some shareholders supporting the deal went so far as to suggest that Gabelli and ClearBridge are playing chicken and may decide to vote for the deal at the last minute.
To be sure, horse trading certainly seemed to be on the mind of Gabelli and T. Rowe Price last week when they said they would likely vote for the deal if the Dolans allowed them to keep an equity stake in the new private company, a suggestion the family dismissed outright.
Keeping Cablevision public or retaining an equity stake in the private company would also allow investors to reap the profits from a sale to Comcast or Time Warner. But rumors of such a deal have been around for almost as long as Chuck Dolan has – the family patriarch celebrated his 81st birthday last week – and don’t appear anywhere close to fruition.
So, Cablevision’s investors have to decide whether to take the $36.26 per share offer now, which would be a gain of 15 percent over the company’s Friday closing price of $31.51, or take their chances on another, better deal down the line.
As James Dolan said in his other role as lead singer for J.D. and the Straight Shot, “Who told you life [as a Cablevision investor] would be easy?”