Duelin' Dolans3/06/2005 7:00 PM Eastern
The escalating feud between Cablevision Systems Corp. chairman Charles Dolan and his son, CEO James Dolan, could peak today (March 7), when father Charles again pleads with Cablevision’s board for control of Rainbow DBS.
The fledging direct-broadcast satellite venture has become the unlikely source of the schism between the father-and-son cable moguls.
|The New Directors|
|Chairman Charles Dolan reshuffled Cablevision's board, adding industry pioneers with ties to himself.|
|SOURCE: Multichannel News research|
|John Malone: His former MSQ, Tele-Communications Inc., once owned a large block of Cablevision stock (25 million shares) and he briefly sat on the Cablevision board from 1998 to 1999, when he sold TCI to AT&T Corp.|
|Frank Biondi: Former CEO of Viacom Inc., and former president of Home Box Office Inc., the premium cable network that was created by Charles Dolan. Biondi was CEO of Viacom in 1988 when it sold 200,000 subscribers in Long Island to Cablevision for $550 million.|
|Rand Araskog: Former chairman and CEO of ITT Corp., the previous owner of Madison Square Garden, which Cablevision purchased in 1997.|
|Leonard Tow: A cable pioneer, Two headed up Century Communications Corp., which sold its 1.6 million subscribers to Adelphia Communications Corp. in 1999. Tow and Charles Dolan were original members of the Cable Entrepreneurs Club, a group of long-time cable executives that meets regularly.|
Charles Dolan’s chances of success rose a bit after his March 2 purge of board members deemed disloyal to his attempts to acquire the remaining assets of the DBS unit, operating the HDTV service called Voom.
Chairman Dolan ousted three board members — retired Cablevision vice chairman William Bell, retired Cablevision executive vice president of communications, government and public affairs Sheila Mahony and Quadrangle Group managing principal Steven Rattner — and filled a vacant seat left by the late John Tatta.
Incoming are a Who’s Who of cable’s old guard: Liberty Media Corp. chairman John Malone, former Century Communications Corp. chairman Leonard Tow, former ITT Corp. chairman Rand Araskog and former Viacom Inc. CEO Frank Biondi.
Bell, Mahony and Rattner were three of the nine Cablevision board members that voted in December to pull the plug on Voom.
Including Tatta’s seat, Cablevision has 14 board members, but that number could rise. In a securities filing last Thursday, Charles Dolan said he would exercise his right to elect 75% of Cablevision’s board at its next annual shareholders meeting on May 19 and he’d ask that the board be increased to 18 members.
He also said that on March 7, he would ask the board to elect his son-in-law and Cablevision senior vice president of electronic media Brian Sweeney to their ranks.
Chairman Dolan hasn’t said why he’s rejiggering the board. But analysts point out that the four new board members are entrepreneurs who might be more sympathetic to Dolan’s Voom dreams.
Some in cable were wondering why Malone and the others would expose themselves to possible shareholder lawsuits and get into what’s essentially become a father-son wrestling match.
“This is more like theater than it is like regular corporate governance,” said one senior cable executive, not at Cablevision, who asked not to be named. “The lawsuits are probably already being written. Why go on the board?”
Adding to the confusion: Some industry observers believed before Feb. 28 that the Dolans had worked out their difficulties and were ready to deal on Voom.
“The rumor about a week ago was not only were they [Cablevision] going to let him [Charles Dolan] have it, they were going to pay him to take it,” said the cable executive, who requested anonymity. “The logic was that it was going to cost them more to shut it down.”
BANKERS ARE WATCHING
To top it off, Cablevision’s annual bank meeting was scheduled for last weekend in Florida.
“Every banker I’ve spoken to said, 'We’re going just to watch the body language,’ ” the executive said.
According to past securities filings, Cablevision is obligated to pay satellite supplier Loral Space & Communications about $42.4 million and owes SES Americom Inc. about $19.8 million for transponder leases.
Last week at the Bear Stearns & Co. Media Conference in Palm Beach, Fla., Cablevision chief financial officer Michael Huseby said other shutdown costs — mainly for call-center service contracts — have not yet been determined, because they have yet to be negotiated.
As Cablevision’s largest Class B shareholder, Charles Dolan can elect a majority of board members.
But several corporate governance experts said that won’t shield the company from possible lawsuits.
“What you have here is a closely held corporation with one person who owns a very large amount of stock, which gives him dictatorial rights over everything else,” said Andrew Williams, co-director of The Center for the Study of Fiduciary Capitalism and professor of graduate business programs at the School of Economics and Business Administration at Saint Mary’s College in Maraga, Calif. “It appears he [Dolan] stacked the board because he wants a particular decision.”
An argument can be made that Cablevision is strengthening its board by adding outside directors with extensive experience in the cable business, but Williams called the timing peculiar. “This sure doesn’t pass the smell test,” he said.
“I wouldn’t want to be their D&O [directors and officers insurance] carrier,” Williams added.
Voom lost $661.4 million in 2004, has only 46,000 subscribers after more than a year of operation — and is in need of substantial funding.
Cablevision agreed in January to sell Voom’s satellite assets to EchoStar Communications Corp. for $200 million. Charles Dolan’s Voom HD was to have bought the remaining assets.
Hopes that the turmoil would lead to a sale of Cablevision’s cable assets had propped up the company’s stock of late. But the uncertainty over Voom’s future — within or outside Cablevision — drove down the stock price as much as $2.24 in early trading last Thursday to $28 each. It rebounded slightly to $28.65 (down $1.59) in 4 p.m. trading March 3.
CABLE SALE IN CARDS?
Analysts were split as to whether the latest chapter of the Dolan saga will mean that the cable company could be put up for sale.
While some analysts have said that Charles Dolan would move to sell the company — possibly to Time Warner Inc. — to help fund Voom, others said there are less drastic ways to raise money.
Janco Partners analyst Matt Harrigan said one way Charles Dolan can raise cash is to sell his Class B shares back to Cablevision or to James Dolan at a premium. That would keep the ownership in the family, he said.
Symbolizing the confusion: Among three prominent cable analysts opining last week, Fulcrum Global Partners’ Richard Greenfield affirmed a “buy” rating on Cablevision; Bear Stearns’ Ray Katz downgraded it to “underperform”; and Aryeh Bourkoff of UBS Securities kept his equity rating at “neutral 2.”
The moves are just the latest in what has been a weeks-long series of strange events at the Bethpage, N.Y.-based MSO.
After deciding to pull the funding plug on Voom in December — and the satellite sale to EchoStar — Cablevision said it was negotiating with Charles Dolan’s Voom HD LLC to sell the remaining Voom assets.
But on Feb. 28, Cablevision said it had ceased talks with Voom HD LLC and that the service would be shut down in 30 days.
That same day, Charles Dolan issued a press release assuring customers Voom would continue — as would his efforts to buy it.
Then on March 2, Cablevision shut down the Voom.com Web site, posting the message “Voom has ceased taking orders and will be shut down at the end of March.”
Soon after, Charles Dolan created Voomllc.com with assurances it was continuing to take orders for the service.
On March 3, the Voomllc.com site came down, leaving behind the message: “This site is temporarily unavailable. Please check back at a later time.” It turned out Cablevision’s independent directors committee told Charles Dolan to do so.
The independent directors’ letter, made public in a March 3 securities filing and signed by director Victor Oristano, said Cablevision considered the Voomllc site deceptive, because it could lead potential customers to believe Voom was still authorized by Cablevision.
“To be clear, Cablevision had authorized funding for Voom through Feb. 28, and the board did not extend that funding beyond that date,” Oristano’s letter added. “It is imperative that this expansion of the business stop immediately and that actions taken by the board be respected and carried out by the company’s officers.”
Ironically, Cablevision operations have been clicking. It’s one of the few big MSOs to actually gain basic video subscribers last year (18,307) and projects 1% to 2% subscriber growth in 2005.
Cablevision also has experienced strong growth in digital and high-speed Internet services, where it has respective penetration rates of 50% and 30%. And its new digital phone service, Optimum Voice, led its cable peers with 244,038 subscribers at the end of 2004.