Friday, November 19, 2010

Cablevision Systems (NYSE:CVC) Looking to Spin Off Rainbow Media

Cablevision Systems Corp. (NYSE:CVC) has given a nod toward the possibility they may spin off their Rainbow Media Holdings LLC unit.

"Earlier today (Thursday), Cablevision announced that it is exploring a leveraged spin-out of Rainbow Media. The assets under discussion for a spin-out are not perfectly reflected in Cablevision’s financials, as the Rainbow business line includes News 12 operations (operates at a loss), which are staying within Cablevision. In addition, Rainbow will need to pick-up its own corporate expense as it separates from Cablevision...We believe Rainbow could be worth $2.5 bn in 2012 (first full-year post-spin), with includes 4x leverage at the end of 2012, which equates to 12x 2012E free cash flow and 10x 2012E EBITDA," said BTIG.

The spin off would result in a tax-free pro rata distribution to shareholders, i.e. a leveraged spin off. The transaction would be completed by sometime in the middle of 2011.

Cablevision closed Thursday at $30.91, rising by $1.98, or 6.84 percent. BTIG has a price target of $37 on Cablevision, and maintains a "Buy" rating on them.

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