Cablevision Systems Corp., the New York-area cable-television provider, is exploring a spinoff of its Rainbow unit, which includes cable channels Sundance, IFC and AMC, the broadcaster of “Mad Men.” The stock jumped.
The unit would be spun off to Cablevision’s shareholders as a “tax-free pro rata distribution,” the Bethpage, New York- based company said today in a statement. The plan calls for a completion of the transaction in mid-year 2011.
The split would let Chief Executive Officer Jim Dolan focus on the company’s cable operation, which competes against rivals such as Verizon Communications Inc. Last quarter, Rainbow’s sales rose 12 percent to $291.4 million, helped by advertising demand. The unit makes up 16 percent of Cablevision’s revenue.
“The cable business is far larger and had overshadowed what has been one of the better performers in the cable business,” said Gabelli & Co. analyst Chris Marangi, who rates the shares “buy” and doesn’t own any.
The move contrasts with larger cable carrier Comcast Corp., which is buying control of NBC Universal to add media assets. Cablevision, about one-fifth the size of Comcast, doesn’t have the scale to push distribution of its networks, said Marangi, based in Rye, New York. As a separate entity, Rainbow has a chance to boost its valuation, he said.
Cablevision rose $1.98, or 6.8 percent, to $30.91 at 4:01 p.m. in New York Stock Exchange composite trading, its biggest jump since July 2009. The stock has added 45 percent this year.
Dolan’s family, which controls Cablevision, is opting to break the company into pieces after trying to take it private at least three times. Earlier this year, Dolan spun off the company’s Madison Square Garden unit.
The separation of Rainbow would provide “each company with greater flexibility to pursue strategic objectives,” Cablevision said.
The company said it isn’t considering the sale of Rainbow or its cable and telecommunications business. Rainbow could be worth as much as $4.7 billion, excluding debt, Miller Tabak & Co. analyst David Joyce wrote in a note to clients today. The unit makes up more than 15 percent of Cablevision’s profit.
AMC’s hit series “Mad Men,” about the New York advertising industry in the 1960s, won an Emmy for best dramatic series in August for the third straight win in the category. The show also won a writing award for creator Matthew Weiner and Erin Levy.
The spinoff of the Rainbow unit would leave Cablevision with mainly cable assets, as well as Newsday, the daily newspaper that makes up less than 5 percent of its sales. In June, Cablevision agreed to buy Bresnan Communications Co. for $1.37 billion, expanding its cable offerings in the western U.S.