Like Bill Bennett at a video poker machine, Cablevision ( CVC) is having a tough time keeping its money inside its wallet.

The New York-based cable operator, which has spent the last few months trying to convince Wall Street it won't spend beyond its means, said Monday it would spend $500 million -- at least half of that in cash -- to buy out Metro-Goldwyn-Mayer's ( MGM) minority stake in three of Cablevision's national program networks.

The deal for AMC, IFC and WE: Women's Entertainment appears to position both Cablevision and MGM for their separate attempts to get a piece of the U.S. entertainment assets put on the auction block by Vivendi Universal ( V).

But the news that Cablevision is a buyer instead of a seller -- even in a deal that analysts say favors Cablevision -- indicates once again that the Dolan family that runs Cablevision is not easily scared off its leveraged ways. Though the company's stock has been on a healthy tear lately, having more than quadrupled off last year's lows as liquidity worries eased, any indication of slippage could bring those worries to the fore again.

Shares in Cablevision rose 4 cents Monday to $21.15.

Buying Spree

Cablevision will pay MGM $250 million in cash on closing of the transaction, and five months later pay an additional $250 million in Cablevision's choice of either cash or Cablevision stock.

Two sell-side analysts, one following Cablevision and one following MGM, said Monday that Cablevision was getting the better end of the deal. Merrill Lynch's Jessica Reif Cohen, who has a buy rating on Cablevision, said she had valued MGM's 20% stake at $500 million. (A relevant Merrill analyst and Merrill itself own Cablevision shares; Merrill has managed public offerings for both Cablevision and MGM, and has received investment-banking fees from Cablevision in the past 12 months.)

J.P. Morgan analyst Spencer Wang termed the deal "uninspiring" for MGM, noting that the per-subscriber valuation MGM was receiving was lower than the benchmarks set by other recent transactions. Wang, who has an underweight rating on MGM, also pointed out that the $500 million MGM was receiving in this deal plus the $250 million it received earlier from selling its Bravo stake back to Cablevision added up to less than the $825 million MGM had paid for the programming assets in February 2001. (J.P. Morgan has done underwriting for both Cablevision and MGM.)

Shoring Up

Presumably both Cablevision and MGM saw the deal as a chance to shore up their respective bids for parts of Vivendi Universal's empire. MGM reportedly seeks to combine its film library, which it calls "the largest modern film library in the world," with the Vivendi-owned Universal studio. In its bid, Cablevision has reportedly teamed with Vivendi Universal Vice Chairman Edgar Bronfman and would apparently contribute its cable TV operations with Vivendi's coveted Sci Fi Channel and USA Network.

But on the way to such a deal, Cablevision is sliding back into the spending ways that reached crisis proportions last summer. Earlier this year, the company said it would spend more money on its yet-to-launch satellite TV service, though Cablevision simultaneously reassured the Street it was capping its investment in the venture.

This time around, Cohen says the AMC/IFC/WE purchase has a minimal impact on Cablevision's leverage, while Smith Barney analyst Niraj Gupta calculates that Cablevision's excess liquidity by the end of 2003 will drop from $800 million to $300 million. While Gupta says he expects Cablevision will be free cash flow positive in 2004, he says that the latest transaction is likely to speed up a refinancing at Cablevision. Gupta has an outperform rating on Cablevision; his firm has received banking fees from Cablevision in the past 12 months, and Smith Barney's parent company, Citigroup ( C), owns at least a 1% stake in Cablevision.

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