M&A

Cablevision to Go Private: Don’t Blame Sarbox

The owners say Cablevision's bid to become a private company stems from a need to be more entrepreneurial.
Stephen TaubJune 20, 2005

On Monday the Dolan family, which owns about 20 percent of the common stock and 71 percent of the voting power of Cablevision Systems Corp., proposed to take the $5 billion cable giant private.

Under the proposed deal, the cable operator would become a private company, while the media conglomerate’s entertainment assets would be spun off into a separate publicly traded company, Rainbow Media Holdings. Rainbow would comprise four national cable networks, including American Movie Classics, as well as an ownership stake in Madison Square Garden, the New York Rangers and New York Knicks sports teams, and Radio City Music Hall.

Shareholders would receive $21 a share in cash for the cable operation and an estimated value of $12.50 a share for Rainbow, giving the deal a total value of $33.50 a share, according to officials at the Dolan Family Group, which made the announcement.

In a letter to the Cablevision board, Charles F. Dolan and his son, James L. Dolan, stated that “[w]ith new technologies and aggressive competitors redefining content delivery, the cable and telecommunications businesses have truly 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 the cable company to meet its competitive challenges.”

Some commentators speculate that the Dolans’ decision to take the cable company private is a result of expensive regulatory compliance costs, especially tied to the Sarbanes-Oxley Act. But that is probably unlikely.

To be sure, several companies have chosen to go private during the past two years, citing the act’s onerous and expensive compliance rules as one of the reasons for abandoning public-company status. But most of those companies have been small and unable to cope with mounting compliance costs, particularly rising audit fees that have significantly cut into total earnings.

Cablevision, on the other hand, has been able to avoid new regulatory burdens. For instance, more than a year ago company officials suggested in a financial filing that Cablevision should be allowed, as a “controlled company,” to eschew several New York Stock Exchange listing standards.

Under the Big Board’s new listing standards, companies are not required to adhere to all of the recently enacted rules if they are deemed a controlled company or a company having more than 50 percent of its voting power held by an individual, group, or another company.

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