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Cablevision COO Rutledge’s Resignation Spurs Takeover Talk

Cablevision Systems Corp. may try to go private or seek a buyer following the resignation of Chief Operating Officer Tom Rutledge, analysts said.

Rutledge announced his exit yesterday, effective later this month. The loss of what Sanford C. Bernstein’s Craig Moffett calls “the hands-down best executive in the cable business” led to downgrades of Cablevision shares by Bank of America Corp., Miller Tabak & Co. and ISI Group. Cablevision fell 8.5 percent to $12.75 at the New York close after falling as much as 17 percent earlier in the day.

Cablevision, the fifth-largest U.S. cable operator, has declined 51 percent since spinning off AMC Networks Inc. on June 30. If the shares don’t recover, Chief Executive Officer James Dolan and his father, Chairman and founder Charles Dolan, may try again to take Cablevision private, said Vijay Jayant, an ISI Group analyst in New York.

“If the stock remains depressed for a protracted period, the Dolan family may explore the prospect, once again, of trying to take Cablevision private,” said Jayant, who cut his rating to “hold” from “buy.”

Cablevision’s longstanding policy is not to comment on rumors and speculation, said Kim Kerns, a spokeswoman for the Bethpage, New York-based company.

Dolan Buyout

The Dolans have twice attempted and failed in the past six years to buy out other shareholders. In 2005, the family withdrew a $7.9 billion offer to take Cablevision private after failing to reach an agreement with directors in four months of talks.

The family tried again in 2007, offering $10.6 billion to shareholders, or $36.26 a share, only to be rejected by investors who thought the offer undervalued the company.

Cablevision’s market value today is about $3.63 billion. The Dolan family controls Cablevision through Class B shares that have 10 votes each. The company had 3.26 million video customers as of the third quarter, according to filings.

The company has transformed itself since 2007, acquiring Bresnan Communications LLC to gain cable assets in the U.S. Northwest for $1.37 billion last year and spinning off AMC Networks and Madison Square Garden in the past two years.

Jayant said Cablevision investors would likely only accept an offer of $25 to $30 a share for a buyout, more than double the current price.

Tighter Credit

Cablevision may be less able to finance a deal today than in 2007 or 2005 because of tighter credit markets for leveraged deals, said David Joyce, an analyst at New York-based Miller Tabak & Co., who downgraded the shares to “neutral” after previously recommending their purchase.

While Joyce would “never say never” to the Dolans making a third run at their company, a strategic acquisition by Time Warner Cable Inc. is more likely, he said.

“Time Warner Cable has a lot of free cash flow, a lot of cash on hand, so I think that would be a higher probability,” Joyce said.

Alex Dudley, a Time Warner Cable spokesman, declined to comment on acquisition discussions.

Time Warner Cable owns systems in New York City, bordering Cablevision’s greater New York-area region.

Going private won’t solve Cablevision’s problems of rising programming costs and competition with Verizon Communications Inc.’s FiOS, said Chris Marangi, a fund manager at Gamco Investors Inc. in Rye, New York. Gamco is Cablevision’s fifth-largest shareholder, with 3.9 percent of Cablevision’s Class A shares. The company also has high residential cable-TV penetration, limiting future growth.

Best to Combine

“The best way to address Cablevision’s issues is to combine with a larger operator,” Marangi said.

An acquisition would also save on programming costs, Marangi said. Time Warner Cable, St. Louis-based Charter Communications Inc. and Philadelphia-based Comcast Corp. are all possible acquirers for Cablevision, he said.

In 2005, Time Warner Cable CEO Glenn Britt said Cablevision “would be an attractive acquisition at the right price.” Rutledge’s departure removes an obstacle for Britt, said Moffett, because the two “were known not to get along.” Rutledge worked at Time Warner Cable until 2001 before leaving for Cablevision.

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