On Wednesday, Cablevision (NYSE: CVC) became the latest cable operator to report solid quarterly results. Nevertheless, those results, which followed similarly robust quarters at Comcast (Nasdaq: CMCSA), at the soon-to-be weaned cable unit of Time Warner (NYSE: TWX), and at smaller Mediacom (Nasdaq: MCCC), might have been viewed with mixed feelings by current Cablevision shareholders and the company's controlling Dolan family alike.
About a month ago, the Dolans offered $27 a share for all the Cablevision shares they don't currently own. The offer generally is expected to result in the company becoming the latest in a line of operators to have been privatized in the past few years. In the meantime, a special transaction committee comprised of outside directors, with help from a bevy of lawyers and investment bankers, is looking into the fairness of the proposal. The obvious question for the committee: With cable operators all going great guns, is $27 a fair offer for Cablevision shares?
The difficulty for the Dolans, who founded Cablevision and have shepherded it for years, is that the quarter may have been too strong. For instance, the number of customers taking Interactive Optimum, the digital video product, grew by an impressive 521,241, or 28.3%, year over year. High-speed data customers similarly increased by 22.7% from September 2005. Throw in a $14.44 (15%) increase to $111.13 in per-subscriber revenues from basic video customers, and you clearly have the makings of a company on a roll.
It's a roll that, unlike companies in other categories of media, most all of the multi-systems cable operators are on. The ability to bundle video, high-speed data, and telephony into a single package is luring customers in droves, and is clearly giving cable a leg up on satellite, which can't provide the same combination. At the same time, while some of the big telephone companies want to offer video, they must quickly spend a king's ransom on infrastructure and may never be able to cut a sufficient number of programming deals to permit a true horse race with cable.
So for the Dolans, things are going extremely well -- or maybe not. The special transaction committee may decide that $27 doesn't cut the mustard for Cablevision shares in today's blossoming cable world (especially with the share price today trading at $27.95). It's a conundrum. I'm personally optimistic about prospects for continued growth in cable, but Foolish investors who want to participate in this play probably should do so with a longer-term investment than is possible with Cablevision.
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