Cablevision Deal

The Wall Street JournalCablevision Deal
Meets More Opposition
By PETER GRANT and TOM LAURICELLA
October 17, 2007; Page A3

ClearBridge Advisors, the largest institutional shareholder in Cablevision Systems Corp., plans to vote next week against the Dolan family's bid to take the company private, delivering a potentially crippling blow to the $10.6 billion effort, according to people familiar with the matter.

A defeat would end a two-year struggle by the Dolans to take private the company, which owns cable systems in the New York area as well as sports teams such as the New York Knicks and Madison Square Garden. The company has been embroiled in numerous battles in recent years, occasionally between family members. Despite these fights, the company's cable unit is an industry leader in financial performance.

ClearBridge owns about 14% of Cablevision's public stock. Three other large institutional shareholders that together control about 20% of the vote -- Gamco Investors Inc., T. Rowe Price and Marathon Asset Management -- have already indicated their intention to oppose the buyout at the shareholder meeting scheduled for next Wednesday. The Dolans -- who own about 20% of the company through a separate class of stock that they can't vote in this matter -- need approval of 50% of the public shareholders.

Like the other dissidents, ClearBridge believes the Dolans' offer of $36.26 a share is too low. Gamco and T. Rowe Price executives, for instance, have said the company is worth more than $50 a share. They have challenged the company's $4.8 billion valuation of its noncable assets, which also include Radio City Music Hall and numerous TV channels. They have also argued that Cablevision's cable systems are worth more than those at companies like Comcast Corp. and Time Warner Cable Inc. because they serve more affluent areas and are further ahead in rolling out phone service and digital cable.

A similar view is taken by ISS Governance Services, one of the leading proxy advisory firms to institutional investors which last week recommended that shareholders vote against the buyout because the price is inadequate. Also, Proxy Governance Inc., a proxy advisory firm based in Vienna, Va., recommended yesterday that shareholders reject the offer.

Few believe the Dolans could afford to raise the price. Even under the current plans, the Dolans are planning to add $8.5 billion of debt to Cablevision's existing $10.5 billion in debt.

Shareholders may still approve the Dolans' plan even with strong institutional opposition. Cablevision's share price has tracked the offer, closing yesterday at $33.70, down 20 cents. But as a group, cable stocks have declined about 20% since May when the family made its latest bid, making the offer more appealing.

Craig Moffett, cable analyst for Sanford C. Bernstein, noted that many of the shareholders who own Cablevision also invest in other cable stocks and that if the Dolans' bid is voted down, Cablevision's shares may fall 10% to 20%. "Any investor who has endured the pain of owning cable over the summer is going to be loath to sign up for another dose by voting this thing down," he said.

Spokesmen for the Dolans and Cablevision declined to comment on ClearBridge's plans. But Cablevision Chief Executive James Dolan said in a written statement released last night that the family won't raise its offer. The company's board recommended the bid in May, noting that it represented a 34% premium to the family's offer the previous year.

ClearBridge's decision comes at a time of rising activism on the part of mutual-fund companies, which traditionally have been loath to pick fights with the management of companies in which they invest. Most notably, T. Rowe Price earlier this year tried unsuccessfully to stop a buyout of Laureate Education Inc., and Lord Abbett Inc. opposed a proposed private-equity buyout of OSI Restaurant Partners Inc., which operates the Outback Steakhouse chain.

ClearBridge's stake in Cablevision sits in its $4.4 billion Legg Mason Partners Aggressive Growth fund, managed by Richard Freeman. Mr. Freeman has on several recent occasions squared off with the managements of companies in which he invests. In early 2006, Novartis Inc. raised the price it was offering for Chiron Corp. after Mr. Freeman criticized the terms of the merger. Mr. Freeman was a major holder of Chiron stock, owning 12% of shares outstanding.

Write to Peter Grant at peter.grant@wsj.com and Tom Lauricella at tom.lauricella@wsj.com