Cablevision (CVC) finally did something with its fledgling satellite service that made investors happy: Put it on the block.
The Long Island-based cable operator said Tuesday that its board had decided to suspend pursuing a spinoff of its Rainbow Media Enterprises subsidiary. In place of the RME transaction, says Cablevision, the company will "pursue strategic alternatives" for its satellite TV service.
Cablevision's shares jumped $2.09 Tuesday morning, or 9.5%, to $24.20.
The minimalist announcement of Cablevision's major change in plans means that Cablevision won't be spinning off, as it has previously insisted it would, a new publicly traded company comprising the Voom satellite service and three Cablevision national programming services: American Movie Classics, the Independent Film Channel and WE: Women's Entertainment.
Rather, as it appears from the traditional "strategic alternatives" code word, Cablevision will try to find a buyer for Voom or its assets.
From its inception, Voom has proved to be a head-scratcher for Cablevision outsiders, who wondered how the startup -- which tried to distinguish itself with high-definition television programming -- could hope to compete against well-established cable and satellite competitors, all of which are laboring to increase their own menu of HDTV programming.
At a time when the larger satellite operators,
, have shown enormous subscriber growth, Voom's growth has been anemic at best.
Cablevision has proven itself over the years to be a fine operator of cable systems and cable programming services. For months, though, the kindest thing that analysts could say about Voom was that it appeared that Cablevision was cutting its losses on the venture by spinning it off. And even that optimism was beginning to feel unfounded, as Cablevision missed a self-imposed deadline for spinning off RME by the end of the third quarter, and later announced it would fail to meet its fallback forecast of spinning off RME by the end of the fourth quarter.
With few mourning Cablevision's plans for Voom, analysts busied themselves with calculating how much Cablevision might reap from a possible sale of the satellite business.
Calling Voom's current operations "value-destructive" for Cablevision, UBS analyst Aryeh Bourkoff suggested -- as have others in the past -- that EchoStar could be a possible buyer for the RME satellite assets, given EchoStar's need for additional capacity.
Based on assumptions such as a negative value of Voom of $300 million, Bourkoff suggests an $800 million swing in value for Cablevision, or $2.67 per share, should the company be able to unload Voom for free. Each additional $100 million Cablevision could reap from a sale would be worth 33 cents per share, estimates Bourkoff. The analyst has a buy rating and a $28 price target on Cablevision, which he calls one of his top picks for 2005.
Oppenheimer analyst Tom Eagan, who has a buy rating and a $26.50 target on Cablevision, writes, "Without a spinoff, we like the valuation of CVC even more because: the company is free of the significant cash flow losses (which we estimate at between $125 million and $175 million, depending on the subscriber net adds) and it clears away much of the ambiguity on the company's valuation."