One can easily surmise that this is about Midler's stipulations, not Rudin. I remember when Bacall appeared in the "Applause" numbers, but that same season Hepburn didn't attend the Tonys, and only allowed "Coco" to be shown in footage recorded at her theater. That seems the precedent. There's no way that Midler presenting an award serves as a replacement for her doing a number, turned out as Dolly. She could do both, after all, as many have.
"I'm a comedian, but in my spare time, things bother me." Garry Shandling