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Cablevisions conservative path

In finalizing details to create a tracking stock for its Rainbow Media cable-networks unit, Cablevision Systems Corp. chose the most conservative route possible, rejecting paths that could have had a greater financial impact on the company. Cablevision will partly separate its cable-network subsidiary by issuing a simple stock dividend, giving investors half a share of what will now be called Rainbow Media Group for each Cablevision share they own.

The tracking stock will trade separately from Cablevision but will remain fully under the cable operator's control, with the board primarily responsible to Cablevision shareholders.

Cablevision President James Dolan says that a major benefit of the move is creating a currency for acquisitions to add to its network portfolio, which includes American Movie Classics and Bravo. But the company had been considering more aggressive moves that would have had greater financial effects on Cablevision itself.

For example, Cablevision could have raised cash by working an initial public offering. Or, in what was considered more likely until recently, Cablevision could have required investors to actually trade in some of their shares in the MSO in order to get Rainbow stock. That's the way Liberty Media was created out of Tele-Communications Inc. It could help the parent company by shrinking the equity base of the MSO, possibly boosting the value of the remaining shares.

Wall Street and industry executives say that one reason Cablevision played it safe is that it doesn't need the cash from an IPO. After selling its systems outside of metro New York, Cablevision's debt will stand around four times cash flow. Most operators celebrate when they get to six times cash flow.

But others see Cablevision executives as lacking confidence in how well Rainbow would play if investors were forced to make a choice between the programmer and the cable systems. Though financially healthy, none of Rainbow's holdings are top-tier cable networks. "They'd have to sell the deal harder," said one media analyst.