Cablevision Approves Rainbow Spinoff

Cablevision's board of directors authorizes plans to spin off of its Rainbow Media business as a "tax-free pro rata distribution" to stockholders.
By Theresa McCabe ,

(Cablevision Rainbow spin-off article updated with analyst commentary and share price information.)

NEW YORK (

TheStreet

) --

Cablevision's

(CVC)

board of directors has authorized management to move ahead with plans to spin off its Rainbow Media business as a "tax-free pro rata distribution" to stockholders.

Management expects the spin-off to be completed by mid-year 2011, and will include the creation of new debt, including a portion to be used to repay $1.25 billion in existing Cablevision debt.

>>Cablevision Explores Rainbow Spin-Off

"We are moving forward with the spinoff of Rainbow from Cablevision, which will create two distinct companies -- one led predominantly by a premiere cable business and another that houses an attractive portfolio of successful programming assets," Cablevision president and CEO James Dolan said.

The new, public Rainbow company will include national programming networks AMC, WE TV, IFC, Sundance Channel and Wedding Central. It will also include IFC branded films and Rainbow network communications.

Cablevision would remain head of its cable and telecommunications business,

Newsday

, News 12 networks, MSG Varsity and Clearview Cinemas.

The spin-off still requires regulatory clearance, including an official ruling from the Internal Revenue Service, as well as final approval by the cable company's board of directors. In November, the company filed the necessary documents with the IRS to obtain tax-free status for the transaction.

In a Nov. 18 research note, analyst James Ratcliffe of Barclays Capital estimated that spinning Rainbow off into a standalone entity could add somewhere between $1 and $3 per share in value to Cablevision's stock.

Analyst Greg Brown with Wunderlich Securities values Rainbow and its assets at $4.5 billion. He says the spin-off has the potential to be an attractive independent cable network entity with programming including

Mad Men

and

Breaking Bad

. In his Dec. 17 research note, Brown maintained his buy rating for Cablevision and held his $38 price target on its shares.

Cablevision closed at $34.72 on Thursday after more than 7 million shares traded hands, compared with the stock's average daily volume of 3 million. Today the stock opened at a 52-week high price of $36.10, but has since dropped to around $34.70.

-- Written by Theresa McCabe in Boston.

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