Cablevision goes ahead with spinoff; Microsoft, Yahoo! deal questioned; Thoratec merger halted

By Stephanie N. Rotondo

Portland, Ore., July 30 - Cablevision Systems Corp. announced Thursday it is moving forward with its spinoff of Madison Square Garden.

The decision to separate the two entities was made in part because "the combined value of these assets has not been fully realized," the company said in a press release. By creating a new company, shareholders will receive more value, the company rationalized.

Meanwhile, the market continued to digest the announcement of a partnership deal between Microsoft Corp. and Yahoo! Inc. Questions remain about whether or not the deal is what is in the best interest for Yahoo! and its shareholders - and whether the company's current top executive made the right move.

Thoratec Corp. saw its merger with HeartWare International Inc. stall after the Federal Trade Commission announced it was filing an injunction, citing anti-competition issues. But one analyst thinks the injunction does not address the present and instead focuses on what ifs.

The equity market got a shot in the arm during the trading session. The Dow Jones Industrial Average gained 82.61 points, or 0.91%, to close at 9.153.33, while the Standard & Poor's 500 index jumped 11.40 points, or 1.17%, to 986.55. The Nasdaq Composite also gained, improving by 16.54 points, or 0.84%, to 1.984.30.

Cablevision aims for year-end

Cablevision, one of the country's largest media, entertainment and sports companies, said it will spin off Madison Square Garden to its shareholders.

According to the terms of the tax-free pro rata deal, Cablevision shareholders will hold equity in both companies. Class A shareholders will receive class A stock in Madison Square Garden, and class B shareholders will receive class B shares.

The Dolan family will retain control of both entities, and Cablevision reiterated it is not looking to sell Madison Square Garden or any of its units.

"This spinoff will create two distinct companies, each with enhanced strategic flexibility, its own defined business focus and clear investment characteristics," said James L. Dolan, Cablevision's president and chief executive officer, in a press release. "The new MSG will be an attractive combination of sports, entertainment and programming properties, while Cablevision will continue to house a portfolio that includes industry-leading telecommunications services and popular programming networks.

"We believe that the combined value of these assets has not been fully realized, and that this transaction will be beneficial to shareholders as both Cablevision and MSG freely pursue their own individual business plans," he concluded.

Cablevision vice chairman Hank Ratner will become Madison Square Garden's president and CEO.

The transaction is expected to close by year-end 2009.

Bethpage, N.Y.-based Cablevision's stock increased $1.78, or 9.40%, to $20.71.

A good deal for Yahoo?

Speculation continues to swirl about a Microsoft-Yahoo! deal announced late Tuesday.

Yahoo! entered into a deal in which Microsoft will power its Bing search engine for both companies, while Yahoo! will focus on driving advertising revenue. But Yahoo! investors seemed to react negatively to the terms, pushing the company's stock down.

The terms do not include any upfront payment to Yahoo!, and the revenue share - 88% - was lower than expected, according to one analyst.

"The terms of the deal don't seem to be favorable," said Todd Greenwald, an analyst with Signal Hill Group. "The big problem is that this is a 10-year deal that doesn't get implemented for at least two years.

"So it is going to take a long time to know if this is a smart move or not," he added.

Given that, Greenwald said that if the deal included an upfront payment of half a billion to $1 billion, "it would be clear from day one."

News reports out Thursday indicated that investors were losing confidence in Carol Bartz, Yahoo!'s CEO. The Microsoft deal was her first big move in that post.

In a press release announcing the plan, Bartz said the deal will bring "boatloads" of value to the Sunnyvale, Calif., internet services company. As evidenced by the company's equity performance over the last two days, investors do not agree.

As the deal progresses, Greenwald said it could potentially damage Bartz's tenure at Yahoo! but that only time would tell.

"It will be a long time before anyone knows if it was right," he said.

Yahoo!'s stock fell 52 cents, or 3.43%, to $14.61.

Microsoft's shares gained a penny, or 0.04%, to $23.81. The software and computer technology company is based in Redmond, Wash.

Thoratec, HeartWare deal hits a wall

Thoratec's planned merger with HeartWare International got stalled Thursday as the Federal Trade Commission filed an injunction to stop proceedings.

The FTC said it believes the merger could pose a risk to competition for the left ventricular assist devices (LVAD) market. Thoratec is currently a leading provider of such devices, and HeartWare has started clinical trials to develop its own pump.

"Thoratec currently has a monopoly on the commercial sale of LVADs in the United States, and the FTC's administrative complaint alleges that Thoratec seeks to maintain its monopoly by acquiring HeartWare, thus eliminating the only significant threat to Thoratec's continued dominance of the LVAD market," the FTC said in a statement.

"It's been a big question what the FTC would do," remarked Alastair Mackay of Garp Research & Securities.

The uncertainty has always been there, he explained, as Thoratec does in fact have a corner on the LVAD market.

"They are really the leader in this field and have developed a pretty good pump," he explains.

That being said, the FTC's concerns lie mainly in the future, not in the present. HeartWare is only in the beginning stages of developing its product line, and it could be two to three years before it even gets approval.

"This is assuming everything goes well," he said. "And lots of times things don't go smoothly."

The companies responded to the FTC's allegations by saying they will review the decision and then go over their various options, which include fighting a lengthy legal battle or giving it up entirely.

"Thoratec has other options for its next-generation pump," Mackay said. "So it's not like HeartWare is the only game in town."

The question will be what management decides to do next, and HeartWare might be at more of a disadvantage with its hefty cash burn and low liquidity. Mackay said the company was spending around $7 million per quarter - and had only about $13 million in the bank.

"In the next six months [HeartWare] will have to do something," he said, whether that be sell itself or convince investors to pony up more funds.

"To think about raising $50 million is not impossible," he noted, given HeartWare's market cap of about $190 million.

But as far as selling itself, HeartWare might not be able to find a buyer in the current marketplace.

"Nobody so far has wanted to put their money into HeartWare," Mackay said.

In the end, it will really be up to management how to handle the situation.

"It's not so much money as it is time and uncertainty," Mackay said. "You might expect if a deal fails, that's bad. And in the long term, it may very well be.

"But in the short term, people don't like uncertainty."

"Thoratec doesn't need HeartWare," he added. "They want HeartWare, but they don't need HeartWare." So it could be just as easy for Thoratec to walk away from the $259.5 million stock-and-cash deal.

"That's usually what happens when the FTC files an injunction," he concluded.

Pleasanton, Calif.-based Thoratec's equity gained 70 cents, or 2.83%, to $25.41.

HeartWare's stock declined $1.24, or 5.39%, to $21.75. The company is located in Framingham, Mass., and Sydney, Australia.

Mentioned in this article:

Cablevision Systems Corp. NYSE: CVC

HeartWare International Inc. Nasdaq: HTWR

Microsoft Corp. Nasdaq: MSFT

Thoratec Corp. Nasdaq: THOR

Yahoo! Inc. Nasdaq: YHOO

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