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http://www.nytimes.com/2008/05/13/bu...gewanted=print


May 13, 2008
Cablevision Strikes Deal to Buy Newsday

By TIM ARANGO and RICHARD PÉREZ-PEÑA
Cablevision Systems and the Tribune Company announced a $650 million deal on Monday that will give Cablevision a 97 percent stake in Newsday.

“Newsday is one of the great names in the history of American journalism and it is both an honor and privilege to return Newsday back to Long Island-based ownership after nearly 40 years,” Cablevision’s chairman, Charles F. Dolan, said in a statement.Under the terms of the deal, Cablevision will have 97 percent of the equity in a partnership that owns Newsday and Tribune will have 3 percent. To form the partnership, Tribune will contribute the Newsday assets and Cablevision will contribute new bonds.

The deal, once considered a long shot, was thrust to the front of the line over the weekend when the News Corporation, controlled by Rupert Murdoch, pulled its bid, saying it would not raise its offer to compete with Cablevision.

That left Cablevision with the prevailing offer.But not for the first time, and probably not for the last, Wall Street is wondering just what the Dolans are thinking.

Like many actions taken by the Dolans, the family that controls Cablevision, based on Long Island, and a host of New York properties like Madison Square Garden, the Knicks and the Rangers, their Newsday bid resulted in a collective head scratch.

The Newsday bid had the backing of both Charles Dolan, who founded the company, and his son James L. Dolan, the chief executive — even if the two still have an uneasy relationship. Three years ago, father and son fought publicly over the fate of an expensive satellite project called Voom, a favored venture of the elder Mr. Dolan; when it lost millions, his son shut it down.

About two weeks ago, both Dolans flew to Chicago to meet with Sam Zell, the chief executive of Tribune, and Cablevision’s bankers and lawyers were in Chicago over the weekend finishing the final deal points.

Both Dolans have attended meetings about Newsday, but the tension between the two has been obvious, said one person present who was granted anonymity because of the confidential nature of the discussions that led to the deal. The family has been a lightning rod for public criticism — not least of all because of the soap opera that has been the Knicks — and the father is known to laugh off the words of critics, while the younger Mr. Dolan is more thin-skinned.

The Newsday bid came amid a flurry of deal activity from Cablevision after an unsuccessful bid by the Dolan family last fall to take the company private in a $10.6 billion deal. Most analysts question the rationale for buying Newsday and had hoped Cablevision’s quest would fail.

But when it comes to the Dolans, the only thing that is predictable about them is that they are unpredictable.

“We’ve seen this movie before,” said Craig E. Moffett, an analyst at Sanford C. Bernstein & Company. “Jimmy made the comment the other day that their shareholders pay him to grow the company. Maybe he believes that, I don’t know. Shareholders pay him to increase shareholder value. Even if you squint hard enough to justify these deals, it isn’t what shareholders signed up for.”

Last week, the company spent $496 million in stock and cash to acquire the Sundance Channel, a deal that was tepidly accepted by most investors and analysts.

The price, Mr. Moffett said, “was less bad than we expected.” Previously, the company flirted with taking a large stake in AEG Live, the concert promoter owned by the billionaire Philip F. Anschutz. That deal fell through, to the relief of many investors, who just wish the company would use its cash to buy back shares.

“It’s always a fun parlor game to figure out the Dolan family’s motivations,” said David C. Joyce, an analyst at Miller Tabak & Company.

Cablevision’s Newsday bid had a touch of audacity to it, coming as it did after offers from two dyed-in-the-ink newspapermen: Mr. Murdoch, whose News Corporation owns The New York Post, and Mortimer B. Zuckerman, owner of The Daily News. Both Mr. Murdoch and Mr. Zuckerman bid $580 million, or $70 million less than Cablevision.

“If you look at The Post and Zuckerman’s bid, there are real synergies there,” Jill A. Greenthal, a senior adviser at the private equity firm the Blackstone Group, said last week at a forum on the media in New York City. “If you look at Cablevision’s bid, he really wants to own a Long Island newspaper, which I’m not sure I understand.”

An executive of another business who has worked closely with the Dolans said their interest in Newsday could not be entirely economic “because there’s not a business rationale to spend what they’re willing to spend.” This person spoke anonymously to avoid alienating the Dolans for future business.

But even if the prospective deal has an element of vanity to it, Cablevision could make the following argument. It has roughly three million cable subscribers in Long Island, New York, New Jersey and Connecticut, while Newsday has about 300,000 subscribers. Cablevision’s customer relationships could help it sell more subscriptions, while overlapping ad sales forces at the two companies could result in cost savings. And Cablevision owns a 24-hour local news channel in Long Island, which could use the news gathering capacity of Newsday — and in theory cut costs.

“To be fair, those synergies probably do exist,” Mr. Moffett said. “But it ends there, and it’s far from sufficient that it would support owning Newsday at that price.”

The Cablevision empire is a strange dichotomy: one side is a cable company that is regarded as one of the best run in the country, while the other side includes Madison Square Garden, the Knicks and the Rangers — and all the publicity and drama that go with owning pro sports franchises in New York City.

Mr. Moffett, talking about the cable portion of Cablevision’s recent quarterly earnings — which make up about 75 percent of the company’s revenue — said, “It was another in the line of an amazing string of quarters.”

As a sign of the strength of the cable side, Mr. Moffett noted that Cablevision recently passed Verizon Communications as the largest provider of fixed-line phone service on Long Island.

“In four years, they went from not having phone service to being bigger than the phone company,” he said.

A cynical theory for the Dolans’ recent deal-making is making the rounds of Wall Street. Under this line of thinking, the family is so angered that shareholders killed the buyout that the Dolans now consider the company their own private fief.

“That’s ridiculous,” Mr. Moffett said. “No one’s going to say, ‘I’m going to light up some of my billions just to spite shareholders.’ ”


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