What's Next for Cablevision?

The unexpected resignation of Cablevision Systems Corp. (NYSE: CVC) COO Tom Rutledge on Thursday has sent speculation into overdrive about whether the MSO might try to sell or attempt yet another bid to go private. (See Cablevision COO Resigns.)

If the MSO is to become an acquisition target, the most logical candidate is Time Warner Cable Inc. (NYSE: TWC), which operates cable systems that generally fit well with Cablevision's in New York City, offering TWC a way to expand its cluster in a high-profile region of the country.

Sanford C. Bernstein & Co. Inc. analyst Craig Moffett postulated in a note Friday morning that Comcast Corp. (Nasdaq: CMCSA, CMCSK) and TW Cable could team up and divide Cablevision's assets (as they did with Adelphia Communications), with Comcast taking Northern New Jersey and Connecticut, and TWC getting Cablevision's New York City-area systems. But, he acknowledged, that "wouldn't generate much of a bidding war" to benefit the Dolan family, Cablevision's controllers.

ISI Group Inc. analyst Vijay Jayant doesn't see M&A as a likely scenario for Cablevision, telling Light Reading Cable that the gap between what the Dolans would want and what an MSO like TW Cable would be willing to pay is likely far too wide. TW Cable, he said, would likewise be concerned about seeing its stock getting penalized for such a move, as it is now for its pending $3 billion acquisition of Insight Communications Co. Inc. . So that might make it gun-shy to pull the trigger on an even bigger deal. (See Time Warner Cable Splashes Out $3B for Insight .)

"The market doesn't believe that M&A can create value," Jayant says. "My hunch is that they [the Dolans] will try to take it private themselves rather than sell."

That would be Cablevision's fourth attempt at going private. It last tried it in 2007 but failed amid protests from shareholders that the bid undervalued the company. (See Cablevision Shareholders Reject Dolan Bid.)

But Cablevision could find easier sledding now that it has spun off assets such as Madison Square Garden and AMC Networks. Cablevision "has become more bite-size because it's just the cable asset," Jayant says. (See Cablevision Board OKs MSG Spinoff.)

In a note issued Friday, Jayant called news of the departure of the well-regarded Rutledge "one of the biggest bombshells in recent industry memory." The market appeared to agree as Cablevision shares plunged $1.53 (11%) to $12.40 early Friday.

What' s next for Rutledge?
Rutledge and Cablevision did not provide a specific reason for his resignation. "Everything I hoped for when I came to Cablevision has come true," Rutledge, who joined Cablevision in 2002, said in a statement.

Under Rutledge's watch, Cablevision has become one of the nation's most innovative MSOs. He championed the company's deployment of the highly controversial network DVR and its decision to stream its entire TV lineup to homebound iPads -- two moves that raised the hackles of programmers. He's also been a proponent of delivering video services on an a la carte basis, and operated what became the first major U.S. MSO to deploy a downloadable video security system. (See Cablevision's Network DVR Debuts in the Bronx , Cablevision to Deliver Live TV & VoD to iPad and Cablevision May Take Security for a Spin(off) .)

He also helped Cablevision make gains across the board as it fended off stiff competition from Verizon Communications Inc. (NYSE: VZ) FiOS. However, the MSO, despite its recent purchase of Bresnan Communications, has seen its growth potential reach the exhaustion point following a lengthy winning streak. (See Cablevision Profits, Video Subs Shrink in Q3 .)

"No, we don't think CVC can grow. And, no, we don't think the rest of cable is doomed to the same fate," Bernstein's Moffett wrote in a report in late November. "The cause of CVC's growth decline is straightforward: it has been so successful in achieving high product penetrations that growing further is quite challenging."

Jayant suggested that Rutledge may have stepped down because he "sees the writing on the wall; i.e. that things have nowhere to go but down from here."

Rutledge did not say where he intends to go next, but one possibility is Charter Communications Inc. , whose CEO, Mike Lovett, is leaving by April 30. (See Charter CEO to Step Down .)

Another candidate for that job is John Bickham, who resigned as president of Cablevision cable communications unit last month. Bickham is considered the front-runner for the Charter job, according to Moffett.

— Jeff Baumgartner, Site Editor, Light Reading Cable