Viacom's Freston ousted
Viacom's Freston exits; Dauman, Dooley to lead
SepT 6, 2006
NEW YORK -- In a case of history repeating itself, Sumner Redstone has ousted Viacom Inc. president and CEO Tom Freston, with the executive chairman telling surprised investors Tuesday that Philippe Dauman and Thomas Dooley have returned to take the helm of the entertainment giant.
Industry insiders said the management shake-up reminded them of how Frank Biondi was fired as Viacom CEO a decade ago when Redstone teamed with longtime confidants Dauman and Dooley to elevate them to deputy chairmen.
Redstone noted that when he ran Viacom with Dauman and Dooley from 1996-2000, the company's stock tripled, making for Viacom's best period ever. He signaled that he is seeking to re-create that stock magic, with Dauman as the new president and CEO and Dooley as senior executive vp and chief administrative officer.
Freston, the founder of MTV who had been running Viacom as a separate company only since January, wasn't aggressive enough in his pursuit of acquisitions in the digital space and didn't communicate effectively with Wall Street, which made the company's stock underperform that of corporate sibling CBS Corp., Redstone said during a conference call from Los Angeles in explaining his post-Labor Day weekend surprise.
Viacom shares fell 73 cents, or 2.09%, to $34.24 in trading Wednesday after closing Tuesday at $34.97.
The executive changes also come amid a slew of other challenges for Viacom that have put pressure on its leadership and its stock price, including a sluggish cable TV upfront market and the recent separation of its Paramount Pictures studio from Tom Cruise.
The new executive duo of Dauman, 52, and Dooley, 49, will allow Viacom to "better navigate the digital transition," Redstone told analysts, adding that communication with Wall Street was "deficient" under Freston.
In a memo to Viacom employees obtained by The Hollywood Reporter, Redstone called Dauman and Dooley "my most trusted advisers at Viacom through some of the most significant events in our history."
In the digital world, "Viacom has a tremendous opportunity to become the leading creator of entertainment content on television, in film and on the Internet," Redstone said. Dauman, who has long been an influential figure in the background, will be a "highly aggressive and entrepreneurial (CEO) who will let no opportunities pass and let no company ever beat us to the trophy," he added.
Wall Street observers took that as a reference to News Corp.'s acquisition of the fast-growing online community MySpace, which many have said also would have made a great fit for Viacom.
Dauman said Tuesday that he had no immediate deal plans, noting that "I don't see any major acquisitions I want to do right now." But he said that over time he would aggressively pursue youth-oriented brands and up-and-coming firms in the digital space.
Dauman also said his vision for the company is not radically different than Freston's but that he will follow what he said was his natural competitiveness and will to win. Viacom is "on the right track, but we must move onto the fast track," he said.
Asked about potential further management changes at the corporate and unit level, Dauman said he hopes to keep the Viacom team together and already had talked with Paramount Pictures boss Brad Grey, MTV Networks head Judy McGrath and BET leader Debra Lee. He "expects they will stay," Dauman said.
Sources said Tuesday that there was no immediate sign of a Viacom exodus, though Dauman, when asked, couldn't guarantee that chief financial officer Michael Dolan would remain. Some on the Street suggested that Freston-loyal TV network executives could follow their leader and exit Viacom.
Meanwhile, Dauman is expected to leave his board seat at CBS, though it was unclear Tuesday who would replace him.
Asked about how the Freston shuffle came about, Redstone said it had been in the works for an undisclosed period of time and "had nothing to do with Tom Cruise."
The Viacom board simply felt the company needed a more assertive leadership and didn't like that Viacom shares have trended about 12% lower since the Jan. 3 split of Viacom and CBS, while CBS shares are up 12% since then, said Redstone, who is controlling shareholder of both firms.
CBS officials were not available for comment.
"I intend to provide leadership, energy and a focus on both creative and operational excellence as we work to execute on our strategy to drive Viacom's transformation into the digital media company of the future," Dauman said.
Dauman said he has committed to investing $5 million of his own money in Viacom stock, while Dooley will earmark $4 million. Their compensation packages are much less cash-based than Viacom executive packages in the past, Dauman said. Details of the packages are expected to be filed this week with the Securities and Exchange Commission.
The pair saw a financial windfall when they departed Viacom in 2004 on the heels of the CBS-Viacom merger.
Despite the sudden departure of Freston, Redstone said he and Freston agreed during a conversation Monday night to remain "the social friends we always were." Sources said the executive-suite shuffle was finalized during the long weekend.
Freston, 60, wasn't available for comment beyond a statement that said: "I've spent over 26 years at Viacom, 18 of them with Sumner. ... I have worked closely with Philippe Dauman and Tom Dooley over the years and have the highest respect for their abilities."
Industry observers had different takes on how Dauman and Dooley's leadership would play out.
Both have been members of the Viacom board and have served in several senior executive positions at Viacom, including as deputy chairmen for four years. As such, "They know the businesses inside out" and are comfortable with each other and with Redstone, one insider said.
The pair are "very disciplined business guys," an insider said.
After leaving Viacom, Dauman and Dooley formed private equity firm DND Capital Partners, which specializes in media and telecommunication investments. As a result, some Street folks expect their deal expertise to benefit Viacom.
"They have recently been involved in the M&A pipeline," said Chris Marangi, research analyst at Gabelli & Co., which owns a stake in Viacom. "I'd expect them to be more aggressive in acquisitions in the digital space."
However, some on Wall Street criticized what they see as a lack of operational experience.
Merrill Lynch analyst Jessica Reif Cohen said the executive change "is unexpected and is not likely to be well received by the Street or the creative community." After all, Dauman and Dooley "do not have significant experience in running a major entertainment company," she said. "Furthermore, they were deeply involved in Viacom's attempts to turn around Blockbuster, which was not successful."
Overall, she said investors pushed down Viacom shares more than 5% on Tuesday as they saw the changes as "an attempt by Mr. Redstone to reassert himself in an operating role, a development that is not likely to be warmly received in the investment community."
Citigroup analyst Jason Bazinet had a mixed reaction, calling the executive reshuffle "a mild positive." He said, "While Mr. Freston grew MTV globally, his track record as CEO was mixed. However, there are new risks," mainly management uncertainty in the wake of the Freston resignation and "M&A risk as the new CEO may aggressively pursue M&A."
Lora Kolodny and Alex Woodson contributed to this report.
Industry insiders said the management shake-up reminded them of how Frank Biondi was fired as Viacom CEO a decade ago when Redstone teamed with longtime confidants Dauman and Dooley to elevate them to deputy chairmen.
Redstone noted that when he ran Viacom with Dauman and Dooley from 1996-2000, the company's stock tripled, making for Viacom's best period ever. He signaled that he is seeking to re-create that stock magic, with Dauman as the new president and CEO and Dooley as senior executive vp and chief administrative officer.
Freston, the founder of MTV who had been running Viacom as a separate company only since January, wasn't aggressive enough in his pursuit of acquisitions in the digital space and didn't communicate effectively with Wall Street, which made the company's stock underperform that of corporate sibling CBS Corp., Redstone said during a conference call from Los Angeles in explaining his post-Labor Day weekend surprise.
Viacom shares fell 73 cents, or 2.09%, to $34.24 in trading Wednesday after closing Tuesday at $34.97.
The executive changes also come amid a slew of other challenges for Viacom that have put pressure on its leadership and its stock price, including a sluggish cable TV upfront market and the recent separation of its Paramount Pictures studio from Tom Cruise.
The new executive duo of Dauman, 52, and Dooley, 49, will allow Viacom to "better navigate the digital transition," Redstone told analysts, adding that communication with Wall Street was "deficient" under Freston.
In a memo to Viacom employees obtained by The Hollywood Reporter, Redstone called Dauman and Dooley "my most trusted advisers at Viacom through some of the most significant events in our history."
In the digital world, "Viacom has a tremendous opportunity to become the leading creator of entertainment content on television, in film and on the Internet," Redstone said. Dauman, who has long been an influential figure in the background, will be a "highly aggressive and entrepreneurial (CEO) who will let no opportunities pass and let no company ever beat us to the trophy," he added.
Wall Street observers took that as a reference to News Corp.'s acquisition of the fast-growing online community MySpace, which many have said also would have made a great fit for Viacom.
Dauman said Tuesday that he had no immediate deal plans, noting that "I don't see any major acquisitions I want to do right now." But he said that over time he would aggressively pursue youth-oriented brands and up-and-coming firms in the digital space.
Dauman also said his vision for the company is not radically different than Freston's but that he will follow what he said was his natural competitiveness and will to win. Viacom is "on the right track, but we must move onto the fast track," he said.
Asked about potential further management changes at the corporate and unit level, Dauman said he hopes to keep the Viacom team together and already had talked with Paramount Pictures boss Brad Grey, MTV Networks head Judy McGrath and BET leader Debra Lee. He "expects they will stay," Dauman said.
Sources said Tuesday that there was no immediate sign of a Viacom exodus, though Dauman, when asked, couldn't guarantee that chief financial officer Michael Dolan would remain. Some on the Street suggested that Freston-loyal TV network executives could follow their leader and exit Viacom.
Meanwhile, Dauman is expected to leave his board seat at CBS, though it was unclear Tuesday who would replace him.
Asked about how the Freston shuffle came about, Redstone said it had been in the works for an undisclosed period of time and "had nothing to do with Tom Cruise."
The Viacom board simply felt the company needed a more assertive leadership and didn't like that Viacom shares have trended about 12% lower since the Jan. 3 split of Viacom and CBS, while CBS shares are up 12% since then, said Redstone, who is controlling shareholder of both firms.
CBS officials were not available for comment.
"I intend to provide leadership, energy and a focus on both creative and operational excellence as we work to execute on our strategy to drive Viacom's transformation into the digital media company of the future," Dauman said.
Dauman said he has committed to investing $5 million of his own money in Viacom stock, while Dooley will earmark $4 million. Their compensation packages are much less cash-based than Viacom executive packages in the past, Dauman said. Details of the packages are expected to be filed this week with the Securities and Exchange Commission.
The pair saw a financial windfall when they departed Viacom in 2004 on the heels of the CBS-Viacom merger.
Despite the sudden departure of Freston, Redstone said he and Freston agreed during a conversation Monday night to remain "the social friends we always were." Sources said the executive-suite shuffle was finalized during the long weekend.
Freston, 60, wasn't available for comment beyond a statement that said: "I've spent over 26 years at Viacom, 18 of them with Sumner. ... I have worked closely with Philippe Dauman and Tom Dooley over the years and have the highest respect for their abilities."
Industry observers had different takes on how Dauman and Dooley's leadership would play out.
Both have been members of the Viacom board and have served in several senior executive positions at Viacom, including as deputy chairmen for four years. As such, "They know the businesses inside out" and are comfortable with each other and with Redstone, one insider said.
The pair are "very disciplined business guys," an insider said.
After leaving Viacom, Dauman and Dooley formed private equity firm DND Capital Partners, which specializes in media and telecommunication investments. As a result, some Street folks expect their deal expertise to benefit Viacom.
"They have recently been involved in the M&A pipeline," said Chris Marangi, research analyst at Gabelli & Co., which owns a stake in Viacom. "I'd expect them to be more aggressive in acquisitions in the digital space."
However, some on Wall Street criticized what they see as a lack of operational experience.
Merrill Lynch analyst Jessica Reif Cohen said the executive change "is unexpected and is not likely to be well received by the Street or the creative community." After all, Dauman and Dooley "do not have significant experience in running a major entertainment company," she said. "Furthermore, they were deeply involved in Viacom's attempts to turn around Blockbuster, which was not successful."
Overall, she said investors pushed down Viacom shares more than 5% on Tuesday as they saw the changes as "an attempt by Mr. Redstone to reassert himself in an operating role, a development that is not likely to be warmly received in the investment community."
Citigroup analyst Jason Bazinet had a mixed reaction, calling the executive reshuffle "a mild positive." He said, "While Mr. Freston grew MTV globally, his track record as CEO was mixed. However, there are new risks," mainly management uncertainty in the wake of the Freston resignation and "M&A risk as the new CEO may aggressively pursue M&A."
Lora Kolodny and Alex Woodson contributed to this report.
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