Cablevision Collapse
1. Why did Dolan decide not to reduce customer service staff in the cable operation?
2. How did the company’s sinking stock price affect its financial management?
3. Why couldn’t Cablevision simply borrow $600 million to close the cash flow gap?
Due to Cablevision already being in hot water with the New Yorkers for not carrying the Yankee games, Dolan decided not to reduce customer service staff. As mentioned in text, in addition to Cablevision’s market value taking a nasty tumble in summer of 2002 with typical range of $60 to $70 per share to only a low of$5, the company was only losing the cable subscribers thanks to their refusal to carry New York Yankee games; Cablevision certainly wanted to carry the games, but not at the price the Yankees channel was demanding (Bovee, Thill, Mescon pg.577). Dolan did not want to lose more customers than Cablevision had already lost with the decision of not playing the games. Another reason for the decision to not reduce the customer service staff was because of the handling of the high call volumes the company was expecting due to the inquiries.
How did Cablevision’s sinking stock price affect its financial management? First off, how does the stock price affect the company? In the harshest sense of the word, not much; that is, as long as the company does not run out of cash, then the company’s stock price is irrelevant to the company’s operations. Nevertheless, the stock price is also a reflection of what the market thinks the company’s equity is worthy of which presents implications. If the stock price underrates a company’s equity, it will tend to attract buyout offers, as people will take advantage of the stock’s low price. In Cablevision scenario, they relied heavily on the sales of their own stock as the source of cash and as a security for loan if they needed to borrow money. When the massive tumble, as with many media and technology-related stocks in summer of 2002, took place it sent Cablevision’ stock
2. How did the company’s sinking stock price affect its financial management?
3. Why couldn’t Cablevision simply borrow $600 million to close the cash flow gap?
Due to Cablevision already being in hot water with the New Yorkers for not carrying the Yankee games, Dolan decided not to reduce customer service staff. As mentioned in text, in addition to Cablevision’s market value taking a nasty tumble in summer of 2002 with typical range of $60 to $70 per share to only a low of$5, the company was only losing the cable subscribers thanks to their refusal to carry New York Yankee games; Cablevision certainly wanted to carry the games, but not at the price the Yankees channel was demanding (Bovee, Thill, Mescon pg.577). Dolan did not want to lose more customers than Cablevision had already lost with the decision of not playing the games. Another reason for the decision to not reduce the customer service staff was because of the handling of the high call volumes the company was expecting due to the inquiries.
How did Cablevision’s sinking stock price affect its financial management? First off, how does the stock price affect the company? In the harshest sense of the word, not much; that is, as long as the company does not run out of cash, then the company’s stock price is irrelevant to the company’s operations. Nevertheless, the stock price is also a reflection of what the market thinks the company’s equity is worthy of which presents implications. If the stock price underrates a company’s equity, it will tend to attract buyout offers, as people will take advantage of the stock’s low price. In Cablevision scenario, they relied heavily on the sales of their own stock as the source of cash and as a security for loan if they needed to borrow money. When the massive tumble, as with many media and technology-related stocks in summer of 2002, took place it sent Cablevision’ stock