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Stock Spike Threatens Cablevision Deal

A run on Cablevision Systems Corp. (NYSE: CVC) shares this week has fueled further speculation that shareholders may be reluctant to approve a plan by the Dolan family to take the company private for $36.26 per share.

Cablevision stock reached a five-year high Thursday after jumping $1.30 and closing at $37.73, each in the wake of a report from Sanford C. Bernstein & Co. Inc. senior analyst Craig Moffett suggesting that Cablevision shares could be worth at least twice the current offering price.

Moffett based his conclusion on a proxy Cablevision filed on June 30, which shows projections that the MSO will see a significant increase in free cashflow conversion as capital spending decreases.

According to Moffett, Cablevision is projecting that "consolidated capital intensity" will dip from 14.6 percent in 2006, to 6.0 percent in 2011. Likewise, the MSO projects it will convert 80.3 percent of its EBITDA to unlevered free cashflow by 2010, versus 25.7 percent in 2003.

"If there was any doubt as to why Cablevision seems so eager to go private, here it is," Moffett said in the report. "In just four short years – from 2008 through 2011 – the Dolans would reap more than $30 in cumulative unlevered free cash flow… for an investment of just $36.26 per share."

On May 2, Cablevision confirmed that an independent committee had given its blessing for the Dolan family to take the company private for $36.26 per share. Before obtaining the green light in May, the Dolans had made offers of $27 per share in October 2006 and $30 per share in January 2007, but both were rejected as being too low. (See Cablevision Keeps Family Ties and Cablevision Investors Ponder Privatization.)

A Cablevision spokeswoman had no comment on the sudden rise in company shares or speculation that a bid to take the MSO private could be in trouble.

A shareholder vote on the matter has not yet been set.

Cablevision's capex and cashflow forecasts detailed in the proxy could bode well for other cable stocks, and could offer a glimpse of even better things to come for MSOs that have less exposure than Cablevision has to competition from Verizon Communications Inc. (NYSE: VZ) and its FiOS platform.

"In short, we believe Cablevision's proxy supports a view that all the cable stocks are strikingly undervalued," Moffett wrote.

Presently, Bernstein rates Cablevision, Comcast Corp. (Nasdaq: CMCSA, CMCSK), and Time Warner Cable Inc. (NYSE: TWC) at Outperform, with a $40 target on Cablevision and Comcast shares and a $53 target on Time Warner Cable.

The report did little to bump other cable stocks late in the week. In midday trading Friday, Comcast shares were up 11 cents, to $28.58, while Time Warner Cable was up 2 cents, to $40.13.

Cablevision shares also lost some steam on Friday. They were up 12 cents (0.32 percent) to $37.85 in midday trading Friday.

— Jeff Baumgartner, Site Editor, Cable Digital News

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