Michael Wolff on Viacom's Future Post-Philippe Dauman: 5 Key Scenarios
A CBS merger? Don’t bet on it as Shari Redstone and her new board (and Michael Eisner as CEO!?) weigh everything from major investment to selling off one or both companies.
After one of the most extreme, outlandish and acrimonious boardroom dramas in major company history, it is an interesting task to get down to mapping the new normal at Viacom, prompting the question of whether there can actually ever be a new normal in the Redstone empire.
But given that not long ago it rather looked like Sumner Redstone’s girlfriends and minders, Manuela Herzer and Sydney Holland, would be seated on his boards and voting his shares, it is now — after the settlement of various lawsuits and the departure of Viacom CEO and chairman Philippe Dauman and the end of corporate litigation challenging Redstone’s competency — rather a soft landing.
In fact, many feel that the victor here, Redstone’s daughter Shari, is, despite having waged a tenacious war for control of the company, not interested in running these enterprises herself, but rather is seeking to restore good governance principles under which independent boards and expert managers can bring value to her family’s interest after Viacom’s stock dropped 45 percent in a year. This, in some sense, makes the outcome both more organic and less clear.
In addition to Shari Redstone’s views as her ailing 93-year-old father’s interpreter and trustee of her children’s and nephews’ and nieces’ legacy, some of the other variables in the immediate future of the two Redstone-controlled companies, Viacom and CBS, are who gets the CEO job at Viacom, the dynamic of the new Viacom board, the restlessness of Viacom shareholders, the relationship of Viacom and CBS, the wishes of CBS chairman Leslie Moonves, and the long-term investment view of National Amusements, Inc., the Redstone-controlled company that holds the voting class of Viacom and CBS shares. In no particular order of importance, the personalities, politics and competing interests inside the Redstone empire might play out in the short and medium term something like this:
1. Viacom’s interim CEO Tom Dooley, while the longtime lieutenant of Dauman, has also been — quite under the radar as the air war was occurring over his head — leading the development of the company’s turnaround effort. The plan is reportedly to focus on restoring the identity of Viacom, which has lost both talent (Jon Stewart, Stephen Colbert, John Oliver and Samantha Bee at Comedy Central alone), market share and cultural currency (remember when MTV mattered?), and on how to count an audience concentrated in a youthful age group most likely to watch TV beyond the reach of conventional measurement. Dooley, 59, who has maintained his relationship with Shari Redstone, 62, even during the hostilities between her and Dauman, 62, and who by some reports has been promised an inside track to the top job, has until the end of September to convince the new board that his plan is compelling enough to support.
2. While the new board members, including former Viacom CEO Tom Freston's ally Kenneth Lerer and former Sony Entertainment president and Hillary Clinton confidante Nicole Seligman, have been selected by Shari Redstone and are obviously attentive to her interests, the board’s larger concern — one certainly shared by Shari — is how to deal with a demoralized company and a share price so low that it limits many other options (for instance, given its current depressed value, a sale of the company). The board’s immediate choice here is rather binary: Invite more disruption with a new CEO, the development of a new turnaround plan, an emptying out of current management ranks and a longer-term recovery schedule, or hope Dooley and his team, making up in stability what they lack in novelty, can, sooner rather than later, get positive results. Another wild-card issue here is the selection of a new chairman of the board. Speculation suggests this could be either Freston, ousted by Sumner Redstone from the CEO job in favor of Dauman in 2006, or Michael Eisner, the former CEO and chairman of Disney. Either case suggests a hands-on chairman who might push for a management change. But another view suggests it will be Thomas May, chairman of Eversource Energy, a traditional businessman who might favor stability.
3. Viacom’s dual-class share structure, with voting control in the hands of the Redstone interests, has, given its volatility, attracted activist-oriented funds who are aggressively pursuing ways to boost the share price. This includes publicity-seeking fund managers like Mario Gabelli and Eric Jackson, who, joined by other funds, have been promoting a remerger with CBS, which was split from Viacom in 2006. Such a reabsorption, with CBS’ Moonves, 66, among the most vaunted executives in the entertainment business, leading the combined companies, is something of a holy grail for Viacom shareholders, putting back together what arguably should never have been taken apart. The only problem here is that this fix for Viacom shareholders would almost entirely come at the expense of CBS shareholders, transferring value from one side of Redstone's holdings to the other. Indeed, despite the activists’ public advocacy, most insiders feel there is almost no possibility, or at least no logic, in CBS acquiring Viacom. Not only would it drive CBS shares down and make CBS shareholders bear the costs and risks of a Viacom turnaround, it would also handicap what CBS believes to be one of its key advantages, the rising value of its “retrans” fees — what cable operators pay to carry a broadcast network — against the sinking value of cable channel fees. Even though Shari Redstone, representing her father’s desires, could dictate a merger, there would be little benefit to her or her family to imperil the strong side of their holdings. What’s more, Moonves is said to be unimpressed by the merger case. If there is to be a transaction involving CBS, there are far more strategic candidates than Viacom. It is hard to imagine Redstone or the board not considering Moonves’ views of paramount importance.
4. That being said, if Viacom is desperate enough for a partner (that is, if Shari and the Viacom board can see no other way to rescue the company) then Viacom could probably buy CBS at a premium price that would keep CBS shareholders happy and, making Moonves CEO, give Viacom shareholders long-term hope too (this probably only works if Viacom shareholders have otherwise given up hope).
5. At the same time, it is as likely not in the Redstone interest to have the companies merge. In fact, it may not be in their interest to own both companies. If Shari is not going to be running these businesses, as her father once did, and if they are functionally just portfolio investments, then diversification from what are now holdings overwhelmingly concentrated in the media sector would be the strategic approach. Because Viacom is the undervalued entity, that makes CBS the more likely sale. Or, to the same effect, CBS itself is probably in a position to buy out the Redstone interests (some analysts have suggested this could even be accomplished in a tax-free fashion with CBS funding a new company with cash that would then merge with National Amusements).
In other words, Viacom is existentially alone. Its operatic management turmoil may be behind it, but it is left with a multiyear legacy of brand drift and talent drain, and now, perhaps more than any other global entertainment company, it faces a massive audience behavioral shift. And so the new day begins.
This story first appeared in the Sept. 9 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.