The internal battle between founder Charles Dolan and his son James, the corporate CEO, rocking Cablevision Systems is among “the most Byzantine in memory,” according to one analyst, with the ongoing saga going from “the simply strange to the truly bizarre.”
The Dolan family feud escalated last week as powerful new directors were proposed for the company’s board, possibly signaling big changes ahead for the MSO, which also operates Rainbow Media, Radio City Music Hall, the New York Knicks and other properties.
Charles Dolan, the 78-year-old founder, last week used his control over super-voting shares to put John Malone, Frank Biondi, Leonard Tow and Rand Araskog on the board. They replace directors who had been siding with James Dolan on closing Voom, the money-losing HDTV satellite service that is Charles Dolan’s pet project.
“With relations between Charles Dolan and son James Dolan now appearing irreparable, we believe one possible objective could be the ouster of James as CEO,” said Craig Moffett, VP and senior analyst at Sanford C. Bernstein & Co., who called the situation “Byzantine” and “bizarre.”
With the new directors all being “legendary dealmakers,” Mr. Moffett also sees an increased likelihood that the company’s assets will be liquidated, or split up in some fashion.
Mr. Biondi, the former Viacom president, would be perfect for overseeing the sale of the Rainbow networks, he said. “Malone and Tow are exactly the kind of people you would want on the board if you were preparing to sell the cable business,” he added.
Mr. Malone, now chairman of Liberty Media, once was chairman and CEO of Tele-Communications Inc. Mr. Tow was chairman and CEO of Citizens Communications and CEO of Century Communications Corp.
Mr. Araskog, former chairman and CEO of ITT Corp., “bought and sold innumerable assets over the course of his career,” Mr. Moffett said.
Other analysts expressed concern that the new board members might slow down the closure of Voom.
“We regard this latest development as highly problematic as Mr. Dolan has essentially reshaped the board to sustain the option of acquiring Voom,” wrote Jessica Reif Cohen, first VP at Merrill Lynch, in a report.
Last Monday Cablevision announced that it had failed to come to terms to sell Voom to Charles Dolan’s private venture Voom HD LLC and would shut down the satellite service.
But at the same time Cablevision was announcing the shutdown, Voom HD LLC was soliciting additional customers for the service on its own Web site. And Charles Dolan was negotiating with EchoStar, a competing satellite service, to keep Voom alive. That concerned the company’s committee of independent directors.
A letter to Charles Dolan, sent on behalf of the independent directors, said, “Those efforts-likely to deceive new subscribers and the public into believing that Voom is still an authorized going business of Cablevision-are in direct contradiction to the action taken by the board on February 28th because they are an expansion rather than a shutdown of the business and they are being done with funds that have not been authorized by the board.”
Mr. Dolan was expected to tell the board by a March 7 board meeting how he plans to take Voom off Cablevision’s hands. “If you are unable to come to terms with EchoStar in the very near future, we expect that you will honor your commitment to us to do nothing to impede a shutdown of the Voom business,” the letter said.
Charles Dolan planned to ask at the March 7 meeting that the board be increased in size and that his son-in-law, Brian Sweeney, be added as a director.
Analysts were amazed at the family infighting.
“In this era of corporate governance, Mr. [Charles] Dolan’s actions are remarkable for a public company,” Ms. Reif Cohen said. “With the reshuffled board, there is essentially no block to Mr. Charles Dolan’s pursuit of reviving the Voom start-up and to whatever else Mr. Dolan may be contemplating.”
She expects that Mr. Dolan will eventually acquire the Voom assets.
And Mr. Moffett said the new directors are unlikely to push Cablevision to hold onto Voom and drag the company down.
“They all personally have a lot to lose,” he said. “In the post-Enron age of corporate governance, the fact that they are also old friends of Chuck Dolan’s is unlikely to matter much. Once they are on the board, their fiduciary obligations are to the shareholders, not to old friends.”
At 78, Mr. Dolan must be thinking about the future. “Given the obvious strain between father and son, we view it as improbable that Charles would wish to leave his estate-and the fortunes of his daughter Kathleen, and his sons Tom and Patrick-in the sole control of son James,” Mr. Moffett said. “In our view, a liquidation of Cablevision’s assets is becoming an increasingly likely path.”
Cablevision said last week that the SEC has initiated an informal inquiry into trading at the times when announcements were made about plans to cancel the spinoff of Voom and Cablevision’s agreement to sell some Voom assets to EchoStar.