Cablevision in a rut

Rutledge's exit leaves company in Dolan dynasty's hands

Cablevision stock has taken a hit after chief operating officer Tom Rutledge’s exit left a gaping hole in management led by CEO James Dolan and reinforced Wall Street’s nagging fear that execs not named Dolan are dispensable at a company whose employee roster and board are heavily populated with family members.

According to its latest proxy statement filed with the SEC last spring, James Dolan is the spouse of Kristin Dolan and the brother of Kathleen Dolan, Patrick Dolan, Thomas Dolan, Deborah Dolan-Sweeney and Marianne Dolan Weber; the brother-in-law of Brian Sweeney; and the nephew of Edward Atwood. All of them, as well as patriarch Charles Dolan, are on the board or employees.

The ubiquity of the Dolans, who control more than 70% of the company’s combined shares, makes it unlikely Cablevision will be sold anytime soon despite sporadic waves of takeover speculation, including fresh rumors sparked by Rutledge’s sudden ankling late last week. The highly regarded chief operating officer’s departure sent Cablevision’s stock tumbling 17% Friday. It closed down 8.4% at $12.75.

“They’re not for sale that I know of,” said an exec at another big cable company. He and others noted that talks with larger rival Time Warner Cable fell apart several times in past years over price, at numbers that were significantly higher than where Cablevision now trades. The two companies’ New York-area cable systems are contiguous, which would make them a good strategic fit.

Rutledge gave no reason for leaving and Cablevision was clearly caught short without a replacement lined up. If he had planned to take a new job, possibly running Charter Communications, his departure would have been timed and handled differently. Consensus is he left after knocking heads with James Dolan, the son of founder and chairman Chuck Dolan.

Craig Moffett of Bernstein Research said Rutledge’s loss was compounded by the recent departure of John Bickham, former prexy of Cablevision’s core cable business. The two execs did such a fine job that it’s considered one of the best run cablers around with high penetration in its markets and many customers taking video, voice and data services. Success, however, leaves it less room to expand and less attractive to a potential buyer.

“Cablevision, we have long argued, is a victim of its own success. And much of that success owes to Tom Rutledge and John Bickham,” Moffett said.

The company also faces tough competition in its key markets from Verizon FiOS, also based in New York.

Cablevision said in a statement it has started a search for an executive with responsibility for oversight of the cable operations. It didn’t mention a replacement for COO.

“Remember how may iterations of this we went through, with Viacom and other companies, where the owner is dominant and there is friction. Like Sumner (Redstone), and Mel Karmazin and Frank Biondi,” said longtime media investor Hal Vogel, referring to two former top lieutenants of Viacom chairman Redstone.

While 84-year-old Charles, or Chuck, Dolan is well respected, James, who has been CEO since 1995 and executive chairman of Madison Square Garden since 2009, doesn’t have the same stature and Wall Street appears generally unimpressed with his leadership, which makes executives like Rutledge and Bickham important. At the division, James is said to like best and follow most closely, MSG and its teams, one Wall Streeter noted, the New York Knicks remain mired in a decades-long slump unusual for a major metropolitan team with cash and one of the world’s most famous stadiums behind it. The Knicks were last NBA Champions in 1973.

However, his position seems untouchable. “Charles Dolan, members of his family and related family entities … are able collectively to control stockholder decisions … and to elect up to 75% of the company’s board,” the proxy said.

Members of the Dolan family have agreed to cast their votes as a block. And in something called the Children Trusts Registration Rights Agreement, super-voting Class B stock from the trusts will automatically be converted to Class A stock if sold to anyone outside the family or related parties.

They don’t always get their way. The Dolan family tried unsuccessfully to take Cablevision private twice over the last decade, in 2005 and again in 2006.

And occasionally the family fights itself as in the famous battle over VOOM, a costly HDTV satellite service dear to Charles Dolan that his son James and the board voted to shut down and sell. Dolan tried to buy it with his own cash and filed with the Federal Communications Commission — against Cablevision — to block a sale to EchoStar.

He failed. But during the battle Charles Dolan ejected three directors and installed handpicked replacements, including Frank Biondi, former ITT chairman Rand Araskog and John Malone. Malone didn’t pan out. The Liberty Media chief was publicly dubious about VOOM’s chances and left the board shortly after citing conflict of interest in programming assets.

Said one media investor: “I asked him why he left the board and he said, ‘It’s Chuck’s company.'”