announced tangible progress Monday on its effort to meet its cash needs in 2003. And for that, investors are grateful.
The New York-based operator of cable TV systems, Madison Square Garden and other properties said Monday it was selling its majority-owned Bravo movie channel to
The exact terms of the deal won't be determined until its closing, expected within 60 days. But if Cablevision shares were to hold steady at Monday's prices, the cable operator would end up with about $400 million in GE stock that it could sell to reduce debt. As part of the deal, Cablevision would end up cutting the number of its fully converted, fully diluted shares outstanding by 16%.
Encouraged that the debt-laden Cablevision is no longer simply promising to improve its balance sheet, but actually doing it, investors bid up the company's shares, following the pre-market announcement of the Bravo sale. Cablevision's shares, which had closed Friday at $10.09, down 79% from the cable operator's 52-week high, traded at $11.43 Monday, up 13.3%.
Shares in all publicly traded cable TV operators have declined over the past year. Including the troubled
, which filed for bankruptcy protection earlier this year, the biggest declines have been suffered by the most highly leveraged operators, including Cablevision and
. In spite of the industry's protestations to the contrary, investors have spent much of the year skeptical that the billions borrowed to upgrade cable TV plants will pay off in free cash flow in the face of heavy competition from direct broadcast satellite services.
Investors have been particularly uncertain whether Cablevision -- headed by Chairman Chuck Dolan and his son, President Jim Dolan -- would take the measures, such as asset sales, that would be necessary to close a 2003 funding gap estimated at roughly $1 billion.
In fact, when
market rumors emerged last month that
might set Cablevision up in the satellite TV business, as part of a now apparently doomed effort to win regulatory approval for EchoStar's merger with
, Cablevision's shares plummeted as investors recoiled at the thought of the capital expenditures Cablevision might be tempted to make.
Cash and Stock
In the deal announced Monday,
is buying Cablevision's 80% stake in Bravo for $1 billion worth of GE stock and Cablevision stock now held by GE.
, which holds the balance of Bravo, will receive $250 million in cash for its stake.
The $1 billion of stock that Cablevision receives will include 53.2 million shares of Cablevision now held by GE. Depending on the value assigned those shares -- likely based on their recent trading history at the time of the deal's closing -- Cablevision will receive the balance of the $1 billion in GE shares.
In a Monday note, analyst Niraj Gupta of Salomon Smith Barney called the deal a positive, raising his price target on the stock from $12 to $15. He kept his rating of the stock steady at "in-line." Salomon Smith Barney or an affiliate owns a greater than 1% stake in Cablevision, has been an underwriter for Cablevision and has performed investment banking services for the company.
Other assets Cablevision might sell include a wireless telephone property, a movie theater chain and other programming channels. The company is slated to report its third-quarter financial results on Thursday.