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Going Private: MSO Owners Prefer to Put Up, Not Shut Up

Forget initial public offerings (IPOs). The rage in cable is now taking MSOs private. It appears Cablevisions Systems Corp. may become the third U.S. cable multiple system operator (MSO) to go private in a year, following in the footsteps of Cox Communications and Insight Communications. On Monday, Cablevision's feuding father-son team of Charles and James Dolan put aside their differences and sent an offer letter to the company's board of directors seeking to buy the MSO's New York cable business for $4,777 per subscriber in cash in stock. The proposed $7.9 million deal would include a cash payment to Cablevision shareholders of $21 per share for the company's cable assets, as well as stock in a proposed spin off Rainbow Media Holdings, valued at an additional $12.50 per share. So why the push to go private? First, MSO executives believe their businesses are not being sufficiently valued by investors, primarily due to fears about satellite and telco competition. You have to hand it to the cable guys. Rather than just griping about it, they're showing some cojones and putting their money where their mouths are. It's also a sign MSOs are indeed realizing that emerging competitive threats are very serious. What's funny is that public investors in cable are terrified of telco competition, yet they're unwilling to allow MSOs to sacrifice near-term cash flow growth, and take on more debt, to sure up their strategic footing. Just a little schizophrenic. Finally, watching John Rigas head off to the slammer, the cable cowboys see that tougher governance requirements and fiduciary responsibility expectations in the public markets are dampening their free-wheeling, shoot-from-the-hip management approach. It's just not as fun. In their letter to the Cablevision's board, the Dolans wrote: "With new technologies and competitors redefining content delivery, the cable and telecommunications business has entered a new and challenging era. We strongly believe that a long term, entrepreneurial management perspective -- not constrained by the public markets' tendency to focus on short term results -- will better enable a new entity consisting of the cable and telecommunications business to successfully meet the challenges of intensifying telecom and DBS competition and the risk of new wireless entrants.' This is undoubtedly true. Of course, at the end of the day, the Dolans' offer could simply be a clever move to lower the gavel and start the bidding on its desirable New York cable systems, with a hefty minimum floor price. Certainly Time Warner, and perhaps Comcast, are racing to prepare competing bids to present to the Cablevision board.
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