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The feud that busted out between Sumner Redstone and Philippe Dauman has been good for Viacom investors, with the stock up 9 percent since the chairman emeritus disclosed that he dumped the CEO from his legal trust.
The seven-member trust is important not only to Viacom investors but also CBS stockholders, as it is where Redstone’s stake in National Amusements resides, and it is through that entity that the 92-year-old mogul controls both media companies.
Dauman, along with George Abrams, was replaced as trustees by Tad Jankowski, general counsel at National Amusements, and Jill Krutick, a family friend and former stock analyst. Additionally, Dauman and Abrams were replaced as directors of National Amusements by Krutick and Redstone’s granddaughter, Kimberlee Ostheimer.
CBS shares are up 4 percent since the weekend, but it is Viacom that is getting the bulk of the attention from Wall Street, since a rift between Dauman and Redstone — and Redstone’s daughter, Shari, both a trustee and Viacom board member — could portend massive changes for the parent of MTV, Nickelodeon and Paramount Pictures.
Dauman has sued to reinstate himself into the trust, but some insiders and analysts are expecting a boardroom coup — orchestrated in large measure by Shari — designed to oust Dauman as Viacom CEO and chairman. Judging by the stock reaction, investors seem supportive of the idea.
“Shari seems more flexible toward paths to increase value and Philippe, at least in Wall Street terms, has failed,” said Steven Birenberg of Northlake Capital Management.
“If the current management team is replaced, Viacom’s stock will undoubtedly rise on a short-term basis given investor frustration,” said Pivotal Research Group analyst Brian Wieser.
In fact, Viacom stock has risen every day since it was revealed that Redstone had ousted Dauman from the trust, rising 2 percent Friday, 2 percent Monday, 3 percent Tuesday and 2 percent again on Wednesday to $41.99.
One of the major bones of contention between Dauman and both Redstones, insiders say, is the CEO’s plan to sell off a portion of Paramount. While many on Wall Street are bearish on Dauman overall, they also seem to like the idea of raising an estimated $2 billion-$4 billion while taking on a strategic partner — maybe one from fast-growing China — for the film studio.
Jefferies analyst John Janedis, in fact, says his “buy” rating on Viacom is dependent on a partial sale of Paramount. “It will allow Viacom to de-lever more quickly, as well as provide incremental cash for investment and/or return of capital.”
Meanwhile, Mark Rogers of BoardProspects says that real change at Viacom may not come until after Sumner Redstone dies.
“But Shari is taking steps now to consolidate power and stack the decks in her favor,” Rogers said. “Given what is at stake, I don’t see this as an easy and efficient process. There is the potential for a protracted and contentious legal battle.”
Rogers also adds that investors hoping for Shari to oust Dauman should be careful what they wish for.
“The company’s stock was trading at almost $70 a share a year ago — it now languishes around $40,” he said. “The reality is that the company, its employees and and its shareholders would be best served if none of these figures battling for control had any part in the future of Viacom.”
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