Last week the Dolan family announced an offer to take Cablevision private. The family owns 22.5% of Cablevision’s common stock. However, Cablevision has a dual capitalization consisting of one-vote-per-share Class A stock (which trades on the NYSE) and ten-vote-per-share Class B Stock (which is not publicly traded). The Dolan family owns all of the Class B stock and thus controls 74% of the voting power which means Cablevision falls under the NYSE definition of “controlled company.” The NYSE allows controlled companies to opt-out of various corporate governance listing standards so Cablevision has opted not to have a majority of independent directors on its board or an independent corporate governance and nominating committee. Charles Dolan is chairman of the board and his son James Dolan is CEO, president and a director.
In a letter filed with the SEC, the Dolan family provided the following reasoning for taking Cablevision private:
Our proposal, in addition to providing the public stockholders of the Company with a fair price for â€” and substantial premium on â€” their equity, will ensure the Company has the flexibility to meet the challenges of intensifying competition and the risk of new entrants in the years to come. We continue to feel that succeeding in this fiercely competitive environment requires a long-term, entrepreneurial management perspective that is not constrained by the public marketsâ€™ constant focus on short-term results. We are convinced that private ownership is highly desirable, and we are willing to assume the risks of full ownership and additional leverage to ensure that the Company has the structure and flexibility it needs to continue to grow.
This short-termism argument is a common justification for a going private transaction. The thinking goes that because the majority of shares of most public corporations are owned by institutional investors who generally focus on short-term performance, to keep this shareholder base happy, management will likewise adopt a short-term focus to the detriment of the corporationâ€™s long-term success. In the Cablevision context, however, this argument strikes me as ludicrous. The Dolans control the company and are therefore free to take a long-term view without fear of shareholders pushing them out. Yes, a long-term focus may hurt the stock in the short-term making equity financing more expensive, employee options less valuable, etc. But this could not be a big concern for the Dolans because if they go private, by definition, there will be no public market for Cablevision’s equity anyway. The likely true justification is that the Dolans have superior information about Cablevisions prospects and believe the market is undervaluing its stock. Of course, they can’t say this. Why didn’t they just blame it on SOX? Or how about disclosure requirements force us to tip our hand on strategy?
The Dolan family offer will be considered by a two person special committee (Cablevision has only two independent directors). The committee has not made a decision yet but that hasn’t stopped an enterprising plaintiffs firm from filing a class action suit challenging the deal (see here). This seems a bit premature to me but as they say the early bird gets the worm.