The temptation is to take the money and run. After the rollercoaster share price ride of recent years, long-suffering Cablevision shareholders are being offered $27 a share in cash by the controlling family. That is a 13 per cent premium to Friday’s close. And it would offer investors a clean exit from the Dolan family’s unpredictable whims.
But investors should not run for the door yet. Monday’s bid is certainly better than the offer the Dolans made last year. It is straight cash, compared with the hard-to-value equity stub last time. It is also 15 per cent higher, after adjusting for this year’s special dividend.
The problem is that cable valuations in general have raced higher over the same period. Comcast, the largest in the sector, has risen about 17 per cent since the Dolans launched last year’s bid. As a multiple of 2007 earnings before interest, tax, depreciation and amortisation, UBS estimates the offer values Cablevision’s cable assets at about 7.5 times. That is broadly in line with Comcast, making the Dolans’ premium feel even skinnier.
After successfully holding out last time and getting a better offer, Cablevision’s independent directors should not roll over. Importantly, they know that the group would probably fetch a higher price if strategic bidders were able to make an offer. The Dolans’ 74 per cent voting stake makes that impossible – because they are not sellers. But it does mean the family could turn round at any stage in the future and probably auction the assets for a higher price.
In a sense, shareholders have themselves to blame for accepting the dual-voting structure in the first place – and allowing the current situation to be possible. But they should still try to share in at least some of that potential value. The independent directors should push for a richer premium.