Cablevision considers a dividend and spin-off

August 5, 2008: 2:47 PM ET

By Scott Moritz

Cablevision's Dolan family is weighing its options again. But while the chilly credit market puts some boundaries on the scope of the Long Island cable company's options, some of the more likely moves include a dividend and a spinoff of its Rainbow Media unit, say analysts.

"We arrive at the view that given the current state of the credit markets and $1.7 billion in maturities [Cablevision faces] next year, the company's options are fairly limited," Goldman Sach's analysts wrote in a research note Tuesday.

Shares of Cablevision (CVC), the No.6 cable provider, shot up 7% Tuesday on word that the company was exploring moves to enhance shareholder value. Holding about 20% of the company's stock, the Dolan family has a keen eye on trying to extract more value for the stockholders. The Dolans have made three failed bids to take the company private, but with the lack of big financing available at the moment, another take-private move is probably not in the works.

Most likely is the sale or spin off of Rainbow, the holding company behind TV programming including AMC, WE and IFC. In February, the Dolans were shopping the media unit around but target buyers like Liberty Media (LINTA) didn't bite.

If Cablevision and its bankers can't find a buyer for Rainbow, the company may spin the unit off to shareholders and, with the sale, toss in new debt to finance a dividend, say analysts.

"We believe the company could institute a regular dividend on the order of $1 per share," Goldman's analysts say. The $1 annual dividend would be within reach, costing Cablevision about $280 million, or 34% of the company's free cash flow in 2008, according to Goldman.

A bigger special dividend is less likely since the company would have to seek financing to make a sizeable one-time payout.

The move comes as Cablevision, along with Comcast (CMCSA), Verizon (VZ) and AT&T (T), all face increasing expansion costs and cutthroat competition.

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