Selling Cablevision's Toys

Cablevision Systems said Tuesday it is exploring ways to boost the cable-television company's laggard stock price. If its founding family members, the Dolans, are serious, they will give up their toys. Cablevision's assets are valued at as much as two-thirds more to someone else.

To see how, tick through the assets. The value of the core cable-TV arm might be $14 billion, taking J.P. Morgan Chase's estimated 2008 earnings before interest, tax, depreciation and amortization of $2 billion and valuing the business at the same multiple as Time Warner Cable and Comcast. A keen buyer -- Time Warner Cable, for instance -- might agree to pay a 30% premium, or another $4 billion.

Then there is Rainbow Media, which includes the AMC movie channel and the Independent Film Channel. That business is expanding at a good clip, and NBC's $3.5 billion purchase of the Weather Channel shows there are buyers for good cable assets. If sold, Rainbow could fetch as much as $4 billion.

Forbes pegs the value of Cablevision's New York sports teams -- the National Basketball Association's Knicks and the National Hockey League's Rangers -- at a combined $965 million. The company also has two local sports channels. Last year, Cablevision sold Comcast stakes in a Bay Area sports channel and a New England network. Based on that deal, the value of the two New York channels could be roughly $1 billion. The company's Madison Square Garden venue, plus Radio City Music Hall and entertainment network Fuse, could chalk up another $1 billion.

Also, Cablevision recently bought Newsday for $650 million. Though it doesn't contribute much cash flow, the New York newspaper could sell for $600 million, just slightly less than Cablevision paid. Add it all up, subtract $11.7 billion of debt, and the potential value comes to nearly $14 billion, or $46 a share. That is roughly two-thirds more than the company's stock price of $27.15 at Wednesday's close.

Does that mean Cablevision is a buy? Don't count on it. Last year, the Dolans tried unsuccessfully to buy out other shareholders on the cheap. At best, they will split off the entertainment assets while keeping the same supervoting stock structure that cements their control and drags on shares. That way, they nod toward shareholders while still holding onto their favorite toys.

Citigroup should have much to gain if it moves its equity analysts back under the auspices of its investment bank, something it is considering. The research group was farmed out to Smith Barney, the wealth-management and broking unit, amid former New York Attorney General Eliot Spitzer's investigations into Wall Street research six years ago. It was seen as a public display of contrition by Citigroup, which was among the hardest-hit by Mr. Spitzer's allegations that analysts were compromised by investment-banking ties. There is no reason for the split to continue.

For starters, analysts have established a more-credible record. Stocks to which they accorded "buy" recommendations outperformed those marked "sell" roughly 90% of the time in 2003-07, according to Starmine. In 2002, that figure was 2%. Also, the stipulations put in place by the Spitzer research settlement remain.

If executed, the move would leave Citigroup's researchers reporting to Operating Chief Hamid Biglari, not to banking or sales and trading executives.

It also would put the equity analysts back under the same management as their colleagues in debt and economic research. That could bolster cooperation, fostering smarter, more inclusive research across asset types. There is even the prospect that Citigroup could save a buck or two by eliminating overlapping costs.

One more benefit: It would leave Smith Barney as a pure wealth-management business. That would make it easier to sell should Citigroup ever embrace breaking up the unwieldy megabank.

By:Lauren Silva and Antony Currie
The Wall Street Journal; October 1, 2008