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Cablevision Reels In Sundance Channel

Cablevision Systems has agreed to buy Sundance Channel for $496 million in cash and General Electric stock from owners NBC Universal, CBS and entities controlled by Robert Redford, the companies said Wednesday.

The channel, with about 30 million subscribers, will join Rainbow Media Holdings, along with AMC, IFC and We TV. The price works out to roughly $16.50 per subscriber for Sundance, which has a digital-basic and tiered subscribers. Its programming is a blend of indie films and original series such as Iconoclasts and Live From Abbey Road and newer environmental fare, such as Big Ideas For a Small Planet and the block Robert Redford Presents The Green.

Redford, who started the channel in 1996, will have a "continuing relationship" with the network under the new owners, the companies said. But Cablevision’s Rainbow unit will own 100% of the channel. Redford currently owns about 6% of Sundance; NBCU owns 57% and CBS owns 37%.

GE-owned NBCU will be paid in GE stock (12.7 million shares), in a tax-free exchange. Rainbow received those GE shares when Cablevision and MGM sold Bravo to NBC in 2002 for $1.25 billion. Cablevison said there will be a cash adjustment at closing based upon the value of the shares in relation to the total purchase price, and also said Cablevision will repay the debt associated with the company's prior monetization of the stock.

Sanford C. Bernstein & Co. analyst Craig Moffett, using SNL Kagan cash-flow estimates for Sundance, pegged the purchase price at about 12.4 times annual cash flow (of $40 million). Assuming even modest cost savings that could result from some combination of Sundance with Rainbow's "like-minded" IFC channel, plus savings from using the GE shares in a tax-free way, the valuation could come down to around 10 times cash flow. By contrast, the sale of Bravo to NBC was valued at 19.6 times cash flow.

Pali Research analyst Richard Greenfield figures Sundance’s annual cash flow is more in the $20 million range, jacking the cash-flow multiple up to 24. He, too, assumes there will be some back-end infrastructure savings between IFC and Sundance, and that could reduce the multiple to about a pro forma 16 or 17 (if annual cash flow rises to $30 million).

Greenfield said he expects Sundance and IFC to continue operating as separate entities, with reduced overhead expenses at Sundance. Redford's continued association with the channel -- which Sundance Channel CEO Larry Aidem also said would be the case, in a note to colleagues today -- would tend to support the view that Sundance Channel would continue on as a separate brand.

CBS and Redford will be paid in cash, Cablevision said. Customary closing conditions apply. UBS Investment Bank represented Sundance Channel and its owners as sole financial adviser; Aryeh Bourkoff and Ehren Stenzler were the lead investment bankers. Aidem credited Bourkoff with a "masterful job" in running the process because of the complexity involved with having multiple owners of the asset. He also said the channel attracted "considerable interest" from potential buyers.

Current Sundance Channel management, led by Aidem, is expected to remain in place at least until the transaction closes. Joshua Sapan oversees Rainbow Media as president and CEO. IFC has more than 45 million subscribers and is overseen by executive vice president and general manager Evan Shapiro.

Cablevision reports earnings tomorrow (Thursday) morning and might have more to say about the transaction then.