Last week Cablevision (CVC) shares shot up 14.3% after CEO Jim Dolan mentioned something about “exploring alternatives” to goose the stock price. So today Jim is trying it again, this time via a press release that says pretty much the same thing:
The board authorised the company to take all actions necessary or desirable to evaluate and establish a policy with respect to regular quarterly dividends or stock buybacks as promptly as practicable. Separately, as part of this strategic review, the board authorised the company to explore the spin-off of one or more businesses and other potential strategies.
OK. So what exactly can they do? As we mentioned earlier this week, we’re told that the company is already circulating a book for its Rainbow cable assets (AMC, IFC, etc). Goldman analysts Ingrid Chung and Jason Kim take a look at the options, and are underwhelmed: In a nutshell, they think that there’s no way the Dolans can get their hands on a big enough piece of cash for a significant buyback or dividend, and that a Rainbow sale or spin off won’t do much to boost shares, either. In analyst-speak: the “company’s options are fairly limited.”
Here’s their breakdown:
– Special dividend – Possible though likely to be limited to $500 million to $1.0 billion or $1.75 – $3.50 per share. Flexibility is limited by $1.7 billion in debt maturities in 2009.
– Regular dividend – We believe a regular dividend would be positively viewed by shareholders and would attract a new set of equity investors, the income investor. Additionally, with a significant amount of FCF earmarked each year for the regular dividend, CVC’s flexibility to do acquisitions would be limited.
– Share buyback – We believe this would be difficult to execute if the Dolans and other large shareholders do not contribute their shares to the buyback. This could concentrate shares further with the “majority of the minority” shareholders who opposed the last MBO attempt at $36.26 per share.
– Selling RNS – Could unlock some shareholder value, but NOLs would be used up for capital gains and further leveraging or recap to benefit equity shareholders would be limited as a good source of cash and liquidity (RNS) would no longer be available to be accessed.
– Spinning-off RNS – Succeeds in adding valuation transparency, but the little cash produced from a levered spin would have to be shared (with only 24% going to the Dolans) and in all likelihood, the Dolans may no longer be able to use RNS’ balance sheet for another MBO attempt in the future.
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