Dolans to buy Cablevision in $10.6B deal

NEW YORK (CNNMoney.com) -- Cablevision, the nation's No. 5 cable operator, accepted an offer Wednesday from the company's founding Dolan family to buy the rest of the company in a deal worth $10.6 billion.

The Dolans, who made three previous offers to take the company private, will pay $36.26 a share for the stock they don't already own. That represents a premium of about 11 percent over Tuesday's closing price. Including assumed debt, the deal is worth $22 billion.

Cablevision Chairman Charles Dolan, whose family agreed to buy the rest of the nation's No. 5 cable operator in a $10.6 billion deal.

Shares of Cablevision (Charts, Fortune 500) jumped about 8 percent in afternoon trading, sparking a rally in the sector.

The family controls 74 percent of the company's voting shares but only 2 percent of the publicly traded Class A shares. The independent directors of the board elected by the Class A shareholders had previous rejected offers that the Dolan family made in June 2005, October 2006 and January of this year.

Long Island-based Cablevision has about 3 million cable subscribers, putting it behind No. 1 cable operator Comcast (Charts), which has 24 million subscribers, No. 2 Time Warner Cable (Charts), a unit of media conglomerate Time Warner (Charts, Fortune 500), No. 3 Charter Communications (Charts, Fortune 500) and No. 4 Cox Communications, which also recently was taken private.

While smaller than many of its rivals, Cablevision has an attractive franchise, with a much higher proportion of customers using premium services than many competitors. It's been among the most successful at signing up customers for the "triple play" of digital cable, Internet and telephone service.

About 78 percent of its cable customers had digital cable at the end of 2006, compared to an industry average of 50 percent, while 65 percent had high-speed Internet service versus the industry average of 44 percent. And a solid 39 percent have telephone service through the cable company, far more than the 9.5 percent industry average.

That means the Bethpage, N.Y.-based company should start to throw off a tremendous amount of cash in coming years from those services, finally getting a payback after building its network for those services - a buildout that's weighed on the earnings, and stocks, of cable operators for years.

Still, the company faces growing competition from Verizon (Charts, Fortune 500), which has targeted Cablevision's home market with its own triple play of phone, high-speed Internet and television service. And more and more video content is moving to the Internet, which could pose a long-term threat to the traditional cable service going forward.

Not only did the Dolan family have to battle with the Cablevision board to reach a buyout deal, but they often battled one another as well.

There was even talk in 2004 that the company would split up, with CEO James Dolan taking the cable operations and sports properties while his father and brother Tom Dolan took the rest of the company, including a satellite television business that it then operated.

Chairman Charles Dolan moved to replace a number of family-appointed directors in 2005 after his son James shut the satellite TV due to losses. There was even talk after that dispute that Charles Dolan would move to oust his son as CEO. But the Dolans have worked together for nearly two years in their bid to buy the company.

In June 2005 the Dolans offered $21 a share, along with shares in what would have been a separate company including Madison Square Garden and the other entertainment assets.

In October 2006 they offered $27 a share, about a 13 percent premium over the share price at the time. And in January they boosted that to $30 a share, but it was still deemed insufficient by the company's independent directors.

The latest offer, while accepted by the company's board, still needs approval by holders of a majority of Cablevision's outstanding Class A shares not owned by the Dolan family or Cablevision's directors and executive officers.

"We believe the best way to continue this tradition in today's increasingly competitive environment is as a privately held company," Chairman Charles Dolan and his son CEO James Dolan said in a statement. "This new structure and an entrepreneurial perspective will enable us to keep growing the business with our talented management team and dedicated employees."

Just this week the company agreed to sell its interest in two regional sports networks it owns, in New England and in the San Francisco Bay area, to Comcast for $570 million in cash, which already owned stakes in both networks. The deal was seen helping Cablevision reduce its debt enough to allow the Dolans to make a new, higher offer for the company.

Cablevision still owns Madison Square Garden and the two professional sports teams that play there, the NBA's New York Knicks and the New York Rangers of the NHL, as well as two New York area regional sports networks.

Sports Illustrated.com reported last week that the Dolan family had approached New York Yankees owner George Steinbrenner last month to ask him if that team, or its own regional sports network, were for sale. Steinbrenner's spokesman put out a statement saying neither were for sale. The Yankees are worth $1.2 billion, according to the most recent estimate, and there are some estimates that its network could be worth almost as much.