On The Money

Brian Besieged

1/18/2008 9:15 AM

You wanna know how tough it’s gotten out there for cable stocks?

So bad that one institutional investor, one that doesn’t normally do things like this, is calling for the ouster of Comcast CEO Brian Roberts.

Brian Roberts. The guy who a couple of years ago was being hailed as the smartest guy in cable. The guy who grew his father’s company from a 3-million subscriber regional cable company to the 24-million subscriber powerhouse it is today. The guy who convinced Bill Gates to invest in cable. The guy who is definitely not Jim Dolan, the Cablevision CEO who in one day in 2002 saw his company’s stock to fall 26% after a presentation he made to Wall Street.

According to a report this morning in Barron’s, Chieftain Capital Management, which owns about 60.5 million Comcast shares (2% of its outstanding stock) sent a letter to Comcast Jan. 14 claiming that it is Roberts’ leadership (or lack thereof) that has sent Comcast stock into freefall in the past year. Granted, Comcast shares dropped 35% in 2007 (the entire cable sector was down 28% for the year). But can you blame that entirely on one man? Apparently Chieftain can.

“We strongly believe that it is time for change,” Chieftain said in the letter. Later, the investor said “We want and deserve the best CEO Comcast’s board of directors can find – and, based on his record, Brian Roberts is not it.”

Barron’s says that Chieftain is not known for its shareholder activism, but that its letter could strike a chord with other institutional investors unhappy with Comcast’s performance.

Removing Roberts would be a tough row to hoe. Through super-voting shares, the Roberts family controls 33% of Comcast’s total vote although it owns about 1% of its equity. That means that the Robertses would have to get just a few big shareholders to side with them – say Dodge & Cox, which has an 11.4% stake in Comcast, Microsoft (7.6%), Barclays Global Investors (6.5%) and Marsico Capital Management (5.3%) — to block any move.

This letter comes after a spate of shareholder lawsuits emerged this year claiming that Comcast management knew that it would have to reduce guidance for 2007 long before it did in December. Suddenly, it’s not such a good thing to be Brian Roberts.

But before shareholders take up their pitchforks and torches and descend on Philadelphia, they should remember a couple of things. One: Putting money in the stock market does not always guarantee huge returns. Two: Comcast stock was up more than 60% in 2006, so anybody who invested then is still ahead. Three: Give the guy a friggin’ break.

Because if you base a cable CEO’s performance on how well the stock did last year, guess who becomes the brightest star in cable? Cablevision’s Jim Dolan. Cablevision stock was down just 14.1% in 2007, better than any of the other five publicly traded companies in the sector.

Memories can be short. On Aug. 8, 2002,  Dolan led a special meeting with investors and analysts at the Waldorf-Astoria Hotel to reveal Cablevision’s plan to address a perceived $550 million to $1 billion funding shortfall? Getting shuttered at that time: 26 Wiz electronics stores. Continuing to get investment then, even in the newly announced austerity campaign: its Voom satellite broadcasting service, in which it had already sunk $140 million that year.

The stock fell 26% to a six-year low of $5.81 per share during that day before closing at $6.60 per share. At the time one attendee of the meeting, Cablevision investor Salvatore Muoio called the get-together “relatively close to a disaster.” 

Cablevision stock continued to slide in later trading, reaching a nadir of $4.95 per share on Aug. 13. At that point Cablevision shares had lost nearly 90% of their value from their Jan. 2, 2002 closing price of $48.01 per share. The stock finished 2002 (a rough year for all cable stocks and the year of the Adelphia scandal) at $16.74 per share.

Practically ever since that fateful August 2002 meeting, Cablevision’s public face – at least to the investor and analyst community – has been current chief operating officer Tom Rutledge.  

Dolan gets a lot of credit for Cablevision’s subsequent rise, due to steps taken in 2002 and subsequently, including the pioneering of the $90 Triple Play of Internet, telephone and  TV service. A lot of credit also belongs to Rutledge. Even with last year’s drop, the stock is worth six times what it was after Dolan’s ill-fated Wall Street presentation.

No Wall Street house is calling for Dolan’s or Rutledge’s ouster. Meanwhile, Roberts was recently named by Institutional Investor magazine as its top cable and satellite CEO for 2008.  

Rounding out the top four, in order, were Dish Network CEO Charles Ergen, Jim Dolan and Time Warner Cable CEO Glenn Britt.