Cable Operators

Cablevision Stock Dips on Rutledge Departure

12/19/2011 12:01 AM Eastern

Cablevision Systems chief operating
officer Tom Rutledge’s decision to step down
after nearly 10 years sent shock waves throughout
the industry last week, as analysts and industry
insiders alike wondered what could be in
the cards for both the company and the wellrespected
executive.

Rutledge abruptly resigned from Cablevision
last Th ursday (Dec. 15) after market close, ending
what had been one the most successful rides
in cable history. He joined Cablevision in 2002, after
more than 20 years at Time Warner Cable, and
was quickly charged with implementing one of
the most aggressive triple-play rollouts and strategies
in the industry. Rutledge helped make Cablevision
the leader in virtually every operating
metric — it has the highest video, voice and data
penetrations in the industry by a wide margin.

Although Cablevision has enjoyed unprecedented
growth, there have been recent signs
that its success was catching up with it. Cablevision
has had four consecutive quarters of sluggish
cash-flow growth, which has been reflected
in its stock price — prior to Rutledge’s announcement,
shares were down more than 40% ($11.40
per share) for the year. Tack on rising programming costs and
increased competitive pressure from Verizon Communications,
and the outlook appears increasingly glum.

OTHER RECENT EXITS

Rutledge, whose employment contract was not set to expire
until 2014, is the third high-level Cablevision executive to leave
the MSO in the past six months. In June, chief financial officer
Michael Huseby resigned and in November, president of cable
operations John Bickham left the company after seven years.

Rutledge himself, in a statement last week, seemed to hint
that his work at Cablevision was done.

“Everything I hoped for when I came to Cablevision has
come true,” Rutledge said in a statement. “I am proud of our
record of success, and of the strong leadership team that remains
in place to continue this work.”

Cablevision CEO James Dolan praised his second in
command.

“Tom Rutledge has played a key role in driving and shaping
Cablevision’s success over the last decade, applying a rare
combination of technological vision and operational excellence
that has delivered results,” Dolan said in a statement.
“We are enormously thankful for his time here.”

Just how key a role Rutledge played was reflected in Cablevision’s
stock last Friday (Dec.16), the day after his announcement
— shares were down as much as 15% during the day.

Cablevision is a little pressed for time to find a replacement
— according to a Securities & Exchange Commission
filing last week, Rutledge’s resignation is effective today
(Dec. 19). For its part, the company said in a statement that
it has ample, experienced management to run the business
and has commenced a search for a replacement.

Just who that will be has some analysts stumped. Some have
pointed to former Time Warner Cable chief operating officer
Landel Hobbs, who resigned from the second-largest MSO
in the country last December, as a possible candidate, along
with Insight Communications chief operating officer Dinni
Jain. Time Warner Cable agreed to purchase Insight in August.

GAMCO Investors portfolio manager Chris Marangi said
the field could expand to include regional executives at several
other MSOs. GAMCO owns about 14.6 million Cablevision
shares.

“The business has changed a lot in 10 years,” Marangi said.
“I don’t think there are big visionary decisions that need to be
made — they’ve already been done. It’s more tactical decisions
about pricing and marketing and customer service. There are
capable people out there that can do that.”

For Rutledge, the opportunities abound. Several analysts
pointed to an opening at Charter Communications — CEO
Mike Lovett said earlier this year he would resign in April, or
when a replacement was found.

According to Rutledge’s
employment contract, filed
with the SEC in 2009, he is not
allowed to work for a direct
competitor of Cablevision or
any of its subsidiaries for one
year after leaving the company
of his own accord, which
shouldn’t prevent him from
taking a position at another
MSO. And though he will
keep a $10.5 million special
stock award that fully vested
on Dec. 15, he will have
to return about $2.6 million
of the $7.75 million special
cash award he was eligible for
when he signed the five-year
deal in 2009.

A SOUGHT-AFTER EXEC

ISI Group media analyst
Vijay Jayant said that where
Rutledge ends up is anyone’s
guess, but that his services are
likely to be in high demand.

“If he hasn’t accepted a new
role already, we’d imagine the industry would be lining up for
his services,” Jayant wrote.

For Cablevision, the future is a little cloudier. While some reports
have speculated that the 3 million-subscriber MSO could
be up for sale, analysts say that is unlikely mainly because selling
now would ensure a low deal multiple, and the logical buyer
— Time Warner Cable — has a reputation for looking for
bargains.

Going private — the company made three failed attempts
to do so between 2005 and 2007 — is another option, though
analysts are split on whether the timing is right on that front
as well.

Miller Tabak media analyst David Joyce said that because
of tightened debt markets, banks would probably be reluctant
to lend money for a leveraged buyout. While taking on a private-equity partner would make a deal easier to swallow, that
also has its drawbacks.

“There would have to be a lot of equity involved,” Marangi
said.

November

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