The Deal: Cablevision's Grim Reality

NEW YORK ( TheStreet) -- It's said that nothing is certain but death and taxes. Yet it can also be said, with equal conviction, that nothing is as uncertain as the Dolan family.

That's the Dolans' of Cablevision Systems ( CVC), who control 73% of their coveted tri-state cable company, primarily through a majority of Class B super-voting shares. Spinoffs, family feuds, take-private attempts and a foray into satellite broadcasting (this with Cablevision positioned as satellite broadcasting's killer, mind you), the Dolans generate more news than any other cable clan.

Shares of Cablevision were higher in Friday trading, up 0.62%‎ to $19.60.

So, given the source, the surprise that the Dolans simultaneously have death, taxes and themselves in the news isn't that much of a surprise at all. It is, rather, a timely exploration of the endgame many consider imminent for the country's ninth-largest multisystem operator.

Last month, in a research report that rated Cablevision "outperform," Macquarie Capital analyst Amy Yong presented logical ways for the Dolans to proceed. The report, entitled "The Dolan Jewels," began by acknowledging that Cablevision chairman and family patriarch Charles "Chuck" Dolan is 86.

Yong then enlisted a tax attorney to help her assess various Dolan trusts, after which they identified a stock deal or merger while Cablevision's chairman is still alive as "the most tax-advantageous transaction" for the Dolan dynasty.

The upside to this sort of deal is it would defer capital gains. The downside is it would carry over the cost basis -- believed to be prohibitively low in most cases -- of each trust's Cablevision shares.

However, for many of those trusts, this downside would disappear when the family patriarch ultimately passed. "Upon his death," Yong wrote, "half the Revocable Trust and Grantor Retained Annuity Trusts as well as Family and Grandchildren Trusts would increase their basis to the market price. We also note that one of the benefits of an all-stock deal is that shareholders can choose to convert to cash."

At the other extreme of transferring Dolan wealth to the next generation would be an all-cash deal, also while Cablevision's chairman is alive. All sale proceeds above the shares' prohibitively low cost basis would be subject, in this instance, to capital gain taxes.

One can be excused for thinking these disparate tax scenarios would have Cablevision in the thick of the M&A activity flourishing in its industry, customizing a deal that suits the needs of its reigning family as well as its other constituencies. Yet that distinction currently belongs to Charter Communications ( CHTR), Cox Communications and Time Warner Cable ( TWC).

By comparison, Cablevision appears so uninterested in dealmaking, so atypically content with the status quo, that on Thursday analyst Yong reversed her position and downgraded the company's stock to "neutral."

Prompting the analyst's uncertainty about cable's most uncertain family? "M&A too tough to call."

-- Written by Richard Morgan in New York

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