An aging billionaire clinging to power at a massive entertainment conglomerate, accusations of manipulation by his daughter—from whom he was recently estranged—and lawsuits by ex-girlfriends that talk of sex parties and corporate intrigue. The life of Viacom’s controlling shareholder Sumner Redstone could easily be mistaken for a cheesy, made-for-TV movie aired on one of his company’s own channels.
The Viacom saga is very real, however, with a media empire worth approximately $45 billion hanging in the balance. And while the exact details of what is happening inside the company are difficult to come by, investors seem to be celebrating the fact that there is movement in the executive ranks: The stock (VIAB) has climbed by 15% in just the past two weeks.
There could be even more tectonic shifts taking place soon: According to a report from CNBC’s David Faber, Viacom’s CEO and chairman Philippe Dauman—who has already been removed as a director of Redstone’s trust—and several other members of the board could be replaced as early as this week.
Not that long ago, Dauman looked to have an iron-clad grip on the reins of power at Viacom. Redstone was widely believed to be ill and feeble, and his hand-picked lieutenant appeared to be in full control. In February, he consolidated his power by adding the title of chairman of the board. For whatever reason, that change seemed to trigger a series of moves at the top.
Did the notoriously egocentric Redstone get irritated by the power moves from a man he once described as “my great friend, and the wisest man I have ever known”? Or did Redstone’s daughter Shari—who is vice-chairman and a key member of the trusts that will control Viacom and CBS after Redstone’s death—see a chance to make her own power grab? She was the sole voice opposing Dauman’s assumption of the chairman title, which definitely sent a signal.
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Some Viacom observers believe that one of the things that may have triggered Sumner Redstone’s wrath was Dauman’s announcement that he was planning to sell some or all of the Paramount movie studio. Buying Paramount for $10 billion in 1994 was one of the seminal deals of Redstone’s career, and he is said to be emotionally attached to it.
What we do know is that Dauman’s position at the top of Viacom is now hanging by a thread. He and an ally on the board were removed as directors of Redstone’s trust a week ago, and are challenging that removal in court. Ironically, Dauman—who recently testified that Redstone was in full command of his mental faculties, in a court case involving the billionaire’s ex-girlfriend—is now arguing that Redstone wasn’t capable of making the decision to remove him.
The Viacom CEO is trying to make the case that Shari Redstone has exerted undue influence on her father—the exact same kind of influence that Dauman himself was accused of exerting in the lawsuit launched by Redstone’s ex-girlfriend. Redstone later released a statement saying he removed Dauman of his own accord, based on “what Mr. Redstone believes are the best interests of shareholders.”
Part of what has increased the level of palace intrigue or King Lear-style drama at Viacom is that Shari Redstone—who now appears to have become a very real power behind the throne—was until fairly recently estranged from her father. At one point, he tried to buy her out of her 20% stake in the company, just as he bought her brother Brent out.
There even seemed to be a chance that Redstone might remove his daughter as a director of his trust, which is set to take over control of his 80% voting share in both Viacom and CBS. Now, however, Ms. Redstone says that she has never been closer to her father. And instead of removing her, he has removed Dauman—her chief nemesis—as well as another member of the board who was seen as a close ally of the CEO.
Whatever the truth of the Redstone family dynamics, long-suffering Viacom shareholders are unlikely to cry over the CEO’s ouster. In fact, the prospect of him being removed appears to be the main thing that has boosted the stock price.
A number of prominent shareholders have called for changes at the company over the past year, including fund manager Mario Gabelli and activist shareholder Spring Owl Investments. One of the main recommendations contained in the latter’s 99-page report on Viacom was the immediate removal of Philippe Dauman.
Viacom’s share price has been one of the worst-performing members of the media and entertainment category over the past couple of years. Last year alone, it fell by more than 50%, a loss of more than $15 billion in market value. Perhaps that’s what finally made Sumner Redstone lose his cool. Will Dauman’s replacement do a better job? That remains to be seen, but for now shareholders seem satisfied that he appears to be on his way out.