Michael Wolff on Viacom: How the Philippe Dauman-Shari Redstone War Will Go Down
Sumner's daughter wants the newly appointed executive chairman out (and a possible sale of the company), but she'll need to tread carefully as the board, the trust and Dad's ex-girlfriend could get in the way of her plans.
This story first appeared in the Feb. 19 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
So how does Shari Redstone get rid of her father’s successor, Philippe Dauman, enabling her to sell the dwindling Viacom assets that Dauman controls and that her father’s failing health and geriatric bouffe have effectively frozen in place? That’s the question that Shari has engaged in some combination of corporate farce and grand strategy, and the one that has many hedge fund managers — believing that the fate of Redstone’s Viacom and, to a lesser extent, CBS Corp., are the first dominos of a forthcoming media consolidation — on the edge of their seats.
When Sumner Redstone, 92, resigned as chairman of CBS and was replaced by Dauman at Viacom (the company never announced that he gave formal notice to the Viacom board, causing another bit of continuing confusion) on Feb. 2, Shari declined to assume the chairmanship herself, instead supporting the elevation of CEO Leslie Moonves at CBS and registering the single board vote against Dauman’s move into the chairman’s spot at Viacom. That sets up a series of likely showdown moves before the next Viacom annual meeting and board election nine months from now.
For Shari, a 61-year-old lawyer with her own successful venture capital fund, her father’s exit represents certain progress toward a post-Sumner age. She is said to want to diversify her family’s holdings beyond media and stocks and seek increased liquidity for her 20 percent share of the family holding company. The elevation of Moonves moves CBS, the more successful part of the Redstone empire, in an independent direction. Indeed, Moonves is thought to be interested in a merger possibility with Time Warner, where there have been recent reports that Fox was once again having a “merger of equals” discussion. The elevation of Moonves might allow CBS, if it is inclined, to more effectively play in that game — one that might provide an exit opportunity for the Redstone interests.
Equally, Sumner Redstone’s exit seems to have been propelled by ever-greater Viacom shareholder unrest, including a 99-slide presentation portraying the catastrophe at the $15 billion company by SpringOwl, a hedge fund run by Eric Jackson, a small, but nettlesome and vocal investor, who some believe has the support of Mario Gabelli, one of Viacom’s largest investors. As well, the move has been prompted by ever-growing doubts about Redstone’s mental capacity.
While it might seem in Shari’s interest to also challenge her father’s faculties, and hence his ability to support Dauman, in fact, Dauman, who oversees Redstone’s heath care and Shari, who is disputing Dauman’s authority over her father, have had to unite here. They both maintain that Redstone is still capable of actually making the decision to step down and hence capable of continuing to vote his controlling shares in Viacom and CBS.
Both Redstone’s protege and his daughter are vehemently opposing an effort by a former Redstone girlfriend to have him declared incompetent. For the girlfriend, Manuela Herzer — who took up residence with Redstone, largely barring his family and close associates from seeing him until she herself was ejected in October — a finding of incompetence might make invalid recent amendments to Redstone’s will that have stripped Herzer of an inheritance that includes $50 million and Redstone’s $20 million Beverly Park home, according to a court filing. As significantly, it might give the New York Stock Exchange a basis for seeking to unwind Redstone’s super voting shares. (When Mel Karmazin was running Viacom, he hunted for conflicts that might have helped him get rid of Redstone’s preferences and hence control.) Or perhaps worse, it could open the door for lawsuits by shareholders who bought shares under the belief that the company was being run by Redstone himself instead of by Dauman using Redstone as a puppet.
In one sense, Redstone’s continued control, or at least illusion of control, favors Dauman, 61. Everybody knows that Redstone has long been devoted to Dauman, the son he would have liked to have had. (Redstone has a son, Brent, from whom he has long been estranged.) And to the extent that Dauman remains in charge of his boss’ healthcare, he is his effective interpreter, guiding how 80 percent of the voting shares are cast. At the same time, few who have worked with Redstone, and are familiar with his fanatical share price obsession and the beheading of favored executives who have had even minor stumbles in the past (Frank Biondi, Mel Karmazin, Tom Freston, and, at Paramount, John Dolgen), believe that Redstone would tolerate what has been more than a 40 percent drop in Viacom shares. The stock dropped 21 percent to a 52 week low Feb. 9 after Viacom’s first-quarter earnings revealed declining profits at its Media Networks division and a $146 million loss at the film unit. It probably didn’t help that Dauman lashed out at “naysayers, self-interested critics and publicity seekers” challenging his leadership.
Dauman’s control over Redstone means Shari has to work with several scenarios in her war against Dauman. As long as her father continues to live, or without a finding against his competence, her fight will be at the Viacom board level. That’s the board that just voted, save for Shari Redstone’s lone dissent, to promote Dauman to chairman. But that vote probably belies his true support. Nobody tries to kill the king, who grants al the jobs and board seats, until it’s clear he’s going to be dead. Meanwhile, Shari’s “no” vote establishes a formal anti-Dauman camp and invites further politicking, behind-the-scenes dealmaking and shareholder pressure. Indeed, it invites more activist shareholders into the mix.
If she does manage to challenge Dauman as her father’s medical guardian — Dauman, she will argue, has a financial benefit in a positive evaluation of Redstone’s health, while on her part, in addition to being his daughter and a lawyer herself, she has no direct financial interest in his estate, having cashed out her interest some time ago — she assumes a greater say in characterizing his intentions and the voting of his shares. If her father dies, or if, as his heath care guardian, she concludes that he can’t make decisions, then her fight passes to the trust, whose members, including Dauman, Shari, her son, Tyler Korff, and other longtime Redstone associates, have a clearer fiduciary responsibility — one that might compel a majority to reasonably conclude that Dauman’s management is not in the interest of the trust.
Still, Dauman insists with the elevation of a new set of highly regarded executives at the company — including a new marketing head, Ross Martin, and Nielsen-busting data strategist, Kern Schireson — the company is poised for a turnaround that will be well underway by the next annual meeting. To which, almost everyone else says, fat chance. At the same time, Dauman may be able to mollify in other ways. The recent mind-boggling price paid by the Chinese company Wanda for Legendary Pictures, and the increasing capital flight on the part of Chinese billionaires and Russian oligarchs, could mean that Paramount, Viacom’s ailing film studio, for which Dauman has had little enthusiasm, might suddenly be a rich asset for Dauman to sell — providing him the wherewithal to buy out the Redstones.
The end is near, but, likely, with many exciting chapters and extraordinary plot turns before it’s reached.
Michael Wolff, a Hollywood Reporter contributing editor, writes frequently about the media business. His most recent book is Television Is the New Television.
3:00 pm, Feb. 10 Updated to correct the name of Shari Redstone's son, Tyler Korff.