Copyright 2002 Knight Ridder/Tribune Business News

Copyright 2002 Daily News (NY)

Daily News (NY)…08/22/2002

From LexisNexis

AOL Time Warner Inc.'s positioning itself for a Cablevision hook-up.

Cablevision's stock surged 23 percent, or $1.83, to $9.65 as investors bet AOL Time Warner's unwinding of its complicated partnership with AT&T in Time Warner Entertainment means it will now take steps toward a long expected merger with Cablevision.

As part of AOL Time Warner's agreement with AT&T, AOL will put its cable systems in a new company called Time Warner Cable, with AT&T holding a 21 percent stake.

That company's expected to go public next year, giving AOL stock to buy Cablevision, analysts said.

To "create a cable subsidiary that has a cable-based currency that enables us to participate in the consolidation going forth I think is a big plus," said AOL CEO Dick Parsons.

A union of Time Warner Cable and Cablevision would create New York's foremost cable powerhouse with 4.2 million subscribers in one of the nation's most lucrative regions.

"It's always been held out that Cablevision will be sold and Time Warner Cable is the natural buyer," said Ted Henderson, cable analyst at Stifel Nicolaus & Co. "This provides AOL with a currency to go after cable assets, including Cablevision."

AOL has long coveted Cablevision's high- income customers, and last year ex-AOL boss Gerald Levin told reporters "it makes a lot of sense to put these cable systems together."

"Wouldn't it be nice to have one giant New York City cable cluster?" a cable industry source said.

But insiders said AOL can expect resistance from Cablevision founder Charles Dolan, who'd be reluctant to cede power or sell out at a depressed price.

Once a high flyer, Cablevision's stock has fallen 80 percent in the past year as investors fretted over its need to raise $1 billion in cash to pay its bills. And shareholders have grown increasingly concerned over Cablevision's long-running feud with the YES Network.

Cable stocks in general have been hammered by the Adelphia scandal, though they surged yesterday following the AOL-AT&T announcement.

"The Dolans wouldn't sell out at this level," said David Joyce, media analyst at Guzman & Co.

"I think Chuck Dolan is more interested in controlling assets for his family to run," another analyst said.

But Henderson said he envisions the Dolans selling their cable systems and holding on to the rest of their empire, including Madison Square Garden, the Knicks, the Rangers, and cable networks like Bravo and IFC.

"If the price were right they'd sell the cable and keep the Knicks and the Rangers and MSG," Henderson said.