Going Private, Cable's New Competitive Weapon

Hoping the second time is a charm, the Dolans are making another bid to take Cablevision Systems Corp. private.

In a letter to shareholders on Mondaym Cablevision's founding family offered $27 per share in cash for the company, valuing the outstanding equity at $7.9 billion for an enterprise value of $19.2 billion.

It is sweeter than the deal the Dolans pitched 16 months ago. (See Going Private: MSO Owners Prefer to Put Up, Not Shut Up.) That offer was rejected by Cablevision's independent directors, who concluded that it undervalued the company's cable business. This time, the buyout could fly.

If successful, Cablevision would become the third U.S. cable operator to go private in recent years, following in the footsteps of Cox Communications and Insight Communications.

There is a tendency among those of us in the geek-o-sphere to define competitive dynamics primarily in terms of technology -- obsessing about pipes and gear, speeds and feeds, HFC versus FTTP, and the like. The problem is that this perspective fails to factor in the basic business and market dynamics that more often determine winners and losers.

Cable operators are a scrappy bunch, eager to gain any possible edge on competitors. When fighting the telcos, they already enjoy one key advantage: a lower-cost, non-unionized workforce. (Some argue that remedying this is Verizon's primary motivation behind FiOS). Cable's other possible leg up: the freedom that comes from operating as a private enterprise.

As the Dolans commented in their offer to Cablevision shareholders:

"We believe strongly that responding to the intensifying competition in our industry and the risk of new entrants will require a long-term, entrepreneurial management perspective that is not constrained by the constant focus on short-term results demanded by the public equity markets."

Indeed, without Wall Street breathing down their necks for accelerating EBITDA growth and decelerating capex, private MSOs have more latitude to invest in network upgrades and pursue aggressive pricing strategies. Going private may prove to be cable's latest competitive weapon.

- Michael Harris, Chief Analyst, Cable Digital News
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