The Viacom board of directors spent Memorial Day girding for battle, as the drama over who will run the media company heads for a showdown.
In a letter to shareholders, lead independent director Frederic Salerno said he and the five other independent directors will fight any attempt to oust them, saying they find “inexplicable” the assertion that controlling shareholder Sumner Redstone was mentally competent and acting of his own free will. The letter came three days after a statement from Redstone, issued by his spokesman, that the 93-year old media mogul was considering ousting Viacom Chief Executive Philippe Dauman and the board of directors.
If you haven’t been following this King Lear-like saga, you should read Peter Elkind’s story on “The Disturbing Decline of Sumner Redstone”. In short, Dauman and the board believe Redstone’s daughter Shari is manipulating her father to get them all canned.
There have long been questions about the independence of Viacom’s so-called “independent” directors, in part because they have approved Dauman’s stratospheric pay packages at a time of swooning company performance. I can’t speak to Redstone’s competence to remove the independent directors. But I would ask: why should they stay?
In any case, stay tuned. This one is about to explode.
More news below.
• Verizon Strike Ends
The seven-week strike by 40,000 Verizon workers across the North East is over, after the company made substantial concessions over the weekend. According to details of a new contract announced by the Communications Workers of America, Verizon will raise basic pay by 10.9% over four years (Verizon put it at 10.5%), add another 1,300 new call center jobs on the East Coast and hire 100 new network technicians, as well as withdrawing proposed cuts to pensions and accident and disability benefits. The company got some of what it wanted in cuts to healthcare-related costs. The deal should guarantee a degree of peace if Verizon wants to look for a buyer for what is its least profitable unit (with the risk of locking in lower profitability that will make it less attractive to buyers). However, it’s not clear whether the company wants to head down that route. Although it has switched its focus more to mobile-based technology, it also invested in XO, a fiber-optic cable business. Fortune
• Here’s What a Real One Looks Like
While the Verizon strike looks like the kind of modest victory for labor that you would routinely expect in a tight labor market, what’s going on in France is of a totally different color. Labor unions are holding the country to ransom in an effort to stop President Francois Hollande allowing companies more freedom to hire and fire and to set wages independently of nationwide industry deals. Supplies of gasoline and aviation fuel are running low after the CGT union led a week of blockades of the country’s six refineries. Rail unions and air traffic controllers are due to join the strike this week. Hollande vowed to stay the course again in an interview published Tuesday, but with over 60% of the population still backing the strikes, he faces an uphill struggle. If Hollande had shown this much fight earlier in his presidency, he might have gone into next year’s election campaign with a clearly falling jobless rate. Instead, it’s over 10.5% and Hollande has the lowest poll rankings of any French leader ever. The key question now is whether his ruling Socialist Party is willing to let him see a necessary reform through to the end, or whether it will see a chance to restore its fortunes by cutting another deal with union, and wasting yet another chance to bring Europe’s second-largest economy into the 21st century. BBC
• E.U. Corrals Silicon Valley Over Hate Speech
Facebook, Google, Twitter and Microsoft have all signed up to a new E.U. code of conduct on taking down illegal hate speech, in what represents a clear move in the direction of forcing new media giants to take responsibility for the content they host. According to the Financial Times, the new rules will require companies to review the majority of flagged content within 24 hours and remove it if necessary. This is a major cultural clash between companies born in the land of the First Amendment and European states trying to keep a lid on online jihadism on the one hand and resurgent nationalism and xenophobia on the other. Monitoring all the content produced by services like Facebook, Youtube and Twitter is going to generate material costs for the companies involved (Twitter alone had to take down 125,000 terror-related accounts last year, according to Europol). Financial Times, metered access
• Loose Lips Sink Brazilian Ministers
Brazil’s new government lost another minister after revelations that suggested cabinet members were trying to stop the probe into corruption at state oil company Petrobras. The probe, which exposed the actions that led to President Dilma Rousseff’s indictment, had become a little too thorough for the liking of Senate President Renan Calheiros and Transparency (sic) Minister Fabiano Silveira. The latter stepped down after being caught on a wiretap apparently advising Calheiros on how to avoid getting tangle up in the investigation. Silveira denies any wrongdoing and hasn’t been charged. Rousseff’s ouster had suggested that Brazil’s democracy and institutions were up to the challenges of modern politics. The scale of the Petrobras scandal, which has comprehensively infected the relations between politics and business, may yet give the lie to that notion. Fortune
Around the Water Cooler
• VW Struggles With Emissions, China
Volkswagen returned to profit in the first quarter of the year, after choosing not to book any further provisions against losses from the emissions scandal. However, sales, revenue and the bottom line were all clearly down from a year earlier, reflecting the impact on Europe’s largest carmaker. Net profit was down 20% from a year earlier. The figures would have looked worse if a strengthening euro hadn’t allowed it to revalue the provisions it has booked. In an ominous development in the less-reported strategic challenge facing the company, the contribution to profits from its two Chinese joint ventures fell by 25% year-on-year. The company said it expects deliveries this year to be flat from 2015. WSJ, subscription required
• Another Suicide at Zurich
Martin Senn, the former CEO of one of Zurich Insurance, one of the world’s largest insurers, has committed suicide six months after leaving the company. Strikingly, Senn’s suicide came less than three years after chief financial officer Pierre Wauthier also took his own life, reportedly after heavy pressure from a supervisory board headed by former Deutsche Bank CEO Josef Ackermann, who stepped down shortly afterwards but denied any wrongdoing. In Senn’s last year at the helm, the company had botched a takeover of U.K. insurer RSA, which contributed to it missing its profit target (and led to Senn missing a stock-related payout). A personal tragedy first and foremost, Senn’s suicide obviously raises questions about the pressure of expectation at the company. More broadly, it may also be a reflection of the pressures on insurers to deliver on their commitments (and make a profit at the same time) when investment returns have shrunk to nearly nothing. Fortune
• Nestlé’s Health Kick
Nestle moved further into the health business with a deal to develop and market a technology that tests for milk allergy in infants. The condition affects anything between 0.5% and 2% of infants according to various estimates, but up to 15% show symptoms that suggest allergy, which puts a premium on accurate testing. The world’s largest food company is going one step further than just trying to make its products healthier, increasing its exposure to the space between food and pharmaceuticals, largely through the use of partnerships. Today’s partnership is with Franco-American biotech company DBV Technologies and its Viaskin skin patch test. It’ll cost the world’s biggest food company a modest $11 million up front, rising potentially to $111 million. The test will neatly complement Nestle’s own baby-milk formula products (specifically those aimed at infants who test positive). Milk and baby formula are two of the group’s fastest growing businesses. Financial Times, metered access
• Can There Be an Oncology Bubble?
According to The Wall Street Journal Jazz Pharmaceuticals has agreed to pay around $1.5 billion for Celator Pharmaceuticals, a company with a promising treatment for leukemia in the works, but no actual revenue as yet. Celator is currently preparing its submission to the FDA, two months after announcing positive results for the clinical trials of its new therapy, called Vyxeos. Vyxeos aims to treat acute myeloid leukemia with two currently available drugs in a new formulation, according to the WSJ. Jazz itself already has two cancer drugs on the market and oncology is, of course, one of the hottest segments in pharma. WSJ, subscription required