Cablevision looks to spin off Rainbow Media unit

By Yinka Adegoke

NEW YORK (BestGrowthStock) – Cablevision Systems Corp (CVC.N: ) said it is considering spinning off to shareholders its programing unit, Rainbow Media, which houses the AMC and Sundance Channel networks.

Cablevision shares jumped as much as 10 percent following the news as Wall Street speculated on the possibility of the highly valued cable networks eventually being sold off.

Cablevision, which is controlled by the Dolan family, has been seeking to simplify its holdings following several failed attempts to take the company private in last few years.

Earlier this year it spun off to shareholders its Madison Square Garden (MSG.O: ) unit, home of the New York Knicks basketball team.

Collins Stewart analyst Thomas Eagan said a spin-off of Rainbow Media would provide the Dolan family with greater flexibility to explore another privatization bid.

“We think a standalone Rainbow adds $2 to $3 per Cablevision share should it trade at an 11 times earnings multiple similar to Scripps Networks (SNI.N: ) and Discovery Communications (DISCA.O: ),” said Eagan.

Cablevision said it expects any Rainbow spin-off to be completed by mid-2011. It said it would file to make the transaction tax-free.

Cable networks have become favored by investors for their dual revenue streams from subscription fees and advertising. Rainbow’s star in the last couple of years has been “Mad Men,” an award-winning period drama about the advertising industry in the 1960s.

New York-based Cablevision also said it is not considering the sale of its cable and telecommunications business, which has long been seen as a target of larger New York-based cable company Time Warner Cable Inc (TWC.N: ).

Bernstein Research analyst Craig Moffett said investors will be focused on the significant merger and acquisition implications of a Rainbow Media spin-off.

“As an independent entity, Rainbow would be a far easier acquisition target for one of the larger media companies,” Moffett said in note to clients. “At the same time, Rainbow is also likely to command a far higher valuation as an independent entity than it currently does embedded in Cablevision.”

Rainbow Media contributed about 16 percent of Cablevision’s $1.81 billion third-quarter revenue.

Bernstein Research analysts estimate Rainbow’s enterprise value — debt plus equity — at around $3.9 billion, implying a multiple of 10 times earnings.

The decision to simplify Cablevision runs contrary to last year’s bid by the No. 1 U.S. cable company, Comcast Corp (CMCSA.O: ), to buy a controlling stake in NBC Universal from General Electric Co (GE.N: ). That deal, which would create a $30 billion business with broadcast, cable networks, movie studio and theme parks, is being reviewed by regulators and is expected to close by year-end.

The company’s shares were up 7.5 percent to $31.09 in early-afternoon trading on the New York Stock Exchange after rising as high as $32.08 earlier in the session. The shares have gained about 33 percent this year.

(Reporting by Yinka Adegoke; additional reporting by Sayantani Ghosh and Sweta Singh in Bangalore; Editing by Gopakumar Warrier, Dave Zimmerman and John Wallace)

Cablevision looks to spin off Rainbow Media unit