Showdown at Viacom: What's Next as the Sumner Redstone Era Ends

Shari Redstone - H 2015
Eric Ogden

Shari Redstone appears to be prepared for a battle pitting her against CEO Philippe Dauman. His fate remains unclear as Viacom's board meets on Thursday.

With her action installing Leslie Moonves as chairman of CBS on Wednesday, Shari Redstone has set the stage for a pivotal board meeting at Viacom on Thursday.

The board presumably is going to name a successor to ailing 92-year-old executive chairman Sumner Redstone. A run-up of Viacom shares, which surged 11 percent in after-hours trading, suggests that Wall Street believes significant change is on the horizon — with some hoping that is the case.

The central question is the fate of beleaguered chief executive Philippe Dauman. Viacom’s board long has been perceived as in Dauman’s control, but with a rising chorus of discontent from shareholders as the company’s stock has slid, the pendulum may have swung in Shari’s direction.

Unclear is who would replace Dauman if he departs. Some industry insiders speculate that Moonves could be tapped for the chairman's role. "I can't see them doing better than that," says one high-level executive at another media company.

Of course, it is still possible that Dauman has enough power to take the chairman’s title. Viacom confined itself to a statement confirming only that a board meeting has been set.

Following CBS' announcement on Wednesday that Sumner was resigning, Redstone’s 61-year-old daughter issued a statement on succession that sent a pointed message to Viacom’s board, which includes nine members other than Shari and her father: Dauman, 61, should not become chairman.

As Shari noted in her statement, her father’s trust states his intention that she succeed him as non-executive chairman of both CBS and Viacom. She declined to do so in the case of CBS, she said, because she is a member of the trust that will oversee her father’s media empire when he is no longer in the picture. In her statement, Shari said, “It is my firm belief that whoever may succeed my father as Chair at each company should be someone who is not a Trustee of my father’s trust or otherwise intertwined in Redstone family matters, but rather a leader with an independent voice.”

While her statement made no specific reference to Dauman, he also is a member of the trust that will determine the fate of Redstone’s media empire once the frail mogul is no longer in control. And as Dauman was named Sumner’s healthcare proxy following the October ouster of Redstone’s companion, Manuela Herzer, the reference to being “otherwise entangled in Redstone family matters” also seems directed at Dauman. One executive close to the situation said if Dauman exits, he likely will resign as Redstone’s healthcare representative.

If the board names Dauman chairman of the company, it would come in the face of rising shareholder unrest. A lawsuit filed Jan. 19 in Delaware Chancery Court accuses Dauman of failing in his duty to shareholders and questions the board’s independence. Activist shareholder SpringOwl Asset Management published a 99-frame slideshow online excoriating Viacom — parent of MTV, Comedy Central and Paramount — for “chronic underperformance against peers” and slamming the board for being “too large, too cozy and too overpaid for underperformance.”

Viacom has described the suit as “without merit.”

In the wake of Wednesday’s developments, SpringOwl again called for change at Viacom, saying: “We strongly urge management and the board to appoint an independent director as executive chairman and that it not be Philippe Dauman. We hope management and the board will continue to act responsibly in addressing Viacom’s depressed stock price relative to its much higher asset value.”

Analyst Steve Birenberg of Northlake Capital Management echoed that sentiment, saying it would be “good to have someone independent of the trust and the Redstone family” as head of Viacom.

Dauman’s contract extension last year contained a new clause stipulating that he has the right to resign in the case of “the appointment as executive chairman of the board (or co-executive chairman) of a person other than” Sumner Redstone or himself. He could stand to gain hundreds of millions of dollars if that clause is activated.

His deal, which runs through the end of 2018, gives him an exit package worth millions. His compensation for 2015 rose to $54.2 million even as the stock dropped more than 40 percent.

Herzer has a lawsuit pending arguing that Redstone was not competent to replace her as his healthcare representative. Just days ago Redstone underwent a court-ordered examination by Herzer’s expert, geriatric psychiatrist Stephen Read. Though Read has not yet filed a report on that evaluation, he already concluded that Redstone lacked the capacity to sign the challenged document based on his peculiar signature, which the doctor said in a court filing appeared “as if someone moved the paper under his pen.” Redstone’s expert also has filed a report stating the frail mogul was competent to make the switch.

In court filings, Herzer has asserted that Dauman has lied repeatedly when saying that he has engaged in extensive conversations with Redstone in recent months.

Given the dispute over Redstone’s condition, it is noteworthy that he was not quoted in the CBS press release and issued no statement.