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It's no secret that Cablevision (NYSE: CVC ) has been ailing over the past several months, hemorrhaging executives and money at an increasingly accelerated pace. As the company slims down to the bare bones, observers are wondering when the company will finally be absorbed by one of its competitors, thereby ending the carnage.
Who are the most likely suspects to buy Cablevision? The names most bandied about are Time Warner Cable (NYSE: TWC ) , Charter Communications (NYSE: CHTR ) , and Comcast (NYSE: CMCSA ) . When I started following the exploits of the controlling shareholders, the Dolan brothers, last December, they had just lost star COO Tom Rutledge, who moved to the top spot at Charter. This followed the exits of the cable operations head and the CFO, and the divestiture of company assets Madison Square Garden and the AMC Network. At the time, takeover talk was ripe, as some analysts saw the purging as a sign that the company was attempting to make itself more attractive to a buyer by streamlining operations. The executive bailouts were considered a by-product of an enterprise that was no longer viable on its own.
Three months later, things have gone from bad to worse. James Dolan has been running things since Rutledge's departure, with dismal results. Stock value was down 36% year over year by early November 2011; that percentage stands at around 60% right now. Takeover talk back then mentioned that $30 per share would clinch a sale; now, a mere two months later, analysts are estimating that $23 might be acceptable to the Dolans. Since Rutledge's exit, three more high-level executives have either left or are slated to leave. This exodus reminds me of a sinking ship, and begs the question of whether or not there will be anything left of Cablevision to sell -- or, at least, anything of interest to buyers.
Company assets come with boatloads of debt attached
Cablevision does have some value to other cable companies, such as its subscribership base. Although the company lost more video customers than analysts had predicted, it exceeded estimates for new signups on both phone and high-speed data. Speaking of data, Cablevision's Wi-Fi network is supposedly being fine-tuned and expanded. Since Time Warner, Comcast and Cablevision have been allowing their customers to use all three networks; a purchase for either of the former companies would automatically expand their own system.
The income and outgo issues are real, however. The company has announced lower levels of free cash for 2012, not good news after the 47% drop in profit. In its defense, Cablevision has struggled to retain customers against competitor Verizon in the New York market, resulting in rates that have been wringing much of the profit out of the cable provider's margins. Add to that the heavier-than-ever level of debt on the company's books, and a takeover starts to look more and more like a hard sell.
In addition to Time Warner and Comcast, Charter may wind up being either a more or less serious suitor, considering the inside information that Rutledge has about the company. There is another option, as well: The Dolans could take Cablevision private themselves.
This last is looking more and more plausible to me, particularly since the family has tried this tack before, and failed. Also, the fact that they are still expanding the company's Wi-Fi network and squeezing profits in an effort to compete against Verizon says to me that the brothers are not ready to let go. Another interesting tidbit is that the company's director bought an additional 25,000 shares in Cablevision just last month, the first insider purchase in quite some time. Does he know something others don't? Stay tuned to Cablevision -- this saga may play out very soon.
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