Viacom Board Re-Elected, Voting Rights Proposal Defeated by "Substantial" Majority, Even Excluding Redstone Vote

Philippe Dauman - H 2016
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Philippe Dauman - H 2016

Vice chair Shari Redstone attended Monday’s event in Miami, which was the conglomerate's first since CEO Philippe Dauman added the chairman title.

Viacom's 11 board members were re-elected at the company’s annual meeting in Miami on Monday and a proposal to give every shareholder the same voting power was defeated as CEO Philippe Dauman spoke at his first such meeting since adding the chairman title, acknowledging that "we are not satisfied" with recent financial results.

"The management team and board of Viacom are completely focused on improving our performance and ensuring that performance is reflected in our share price," he said in his prepared remarks.

While there has been a recent flurry of shareholder activism, the voting results at the meeting were not in doubt given that chairman emeritus Sumner Redstone, who like last year missed the annual meeting due to weak health, controls 80 percent of the voting power via his company National Amusements.

A Viacom spokesman said the company's general counsel said at the meeting that all board members were re-elected, and the shareholder proposal voted down by a majority, including "a substantial majority of votes not affiliated with National Amusements."

Final voting results will only be announced later this week.

The entertainment conglomerate’s stock is down about 40 percent over the past year amid rising Wall Street concerns about the performance of the company’s cable networks, including MTV, and the underperformance of Paramount Pictures, but it has risen more than 15 percent over the past month amid somewhat of a rebound from a recent low of $30.11.

Monday's event, which wasn't webcast, was Dauman's first annual meeting as executive chairman. He got that added post earlier this year when 92-year-old Redstone, whose health has been weak and whose mental capacity has been the topic of a lawsuit brought by a former girlfriend, becoming chairman emeritus.

Non-executive vice chair Shari Redstone, the mogul’s daughter, was the only board member to oppose Dauman’s ascension to the chair role. She attended Monday’s annual meeting after vowing, when Dauman became chairman, to “continue to advocate for what she believes to be in the best interests of Viacom shareholders.”

Activist shareholder SpringOwl didn't attend the meeting. Typically, shareholder meetings outside of New York and L.A. tend to have low attendance. Viacom has the headquarters of its Latin American operation, and the meeting was held at its recently opened Viacom International Studios, starting at 11:30 a.m. ET.

Dauman typically discusses the company's past year and current state at the annual meeting. He recently announced Viacom’s plan to sell a minority stake in Paramount Pictures to a strategic investor. Monday's meeting included at least one question about Paramount.

Investors also voted on a proposal to extend voting rights to all shareholders. While the proposal was certain to fail as Redstone's holding company controls 80 percent of the shareholder vote and had said it would vote against it, the final voting result will give a sense for how much confidence minority shareholders have in Viacom's management.

Redstone owns 79.8 percent of Viacom's Class A voting stock via National Amusements, while most other shareholders own Class B shares, which do not have voting rights. Missionary Oblates of Mary Immaculate, a Roman Catholic congregation in Washington DC that owns 4,000 voting shares in Viacom, proposed to extend voting rights to all shareholders via a share recapitalization that would give all Viacom shareholders one vote per share.

"By allowing certain stock to have more voting power than other stock our company takes our public shareholder money does not give us an equal voice in our company’s management," the group argued in the company's proxy statement. "Without a voice, shareholders cannot hold management accountable."

Proxy advisor Institutional Shareholder Services has recommended investors support the proposal.

Viacom has argued though that its dual-class stock structure allows management to focus more on long-term strategy. "Our board periodically evaluates our capital structure and believes that our structure has helped protect our company from short-term pressures and the disruption associated with efforts by activists to challenge control, and the structure has thereby allowed our board and senior management to focus on our long-term success," it said in the proxy.

Mario Gabelli, whose company is the second-largest Viacom shareholder with a stake of 10 stake, has also opposed the recapitalization plan, saying he would only support it if his firm was compensated for giving up its voting stock.

Shareholders also reelected the company's 11 board members, with the size of voting support set to give an indication of how minority shareholders view directors.

Institutional Shareholder Services recommended Viacom investors withhold support for six board members who sit on Viacom's compensation and audit committees, citing such concerns as executive compensation decisions. The board members it cites are Frederic Salerno, Inside Edition anchor Deborah Norville, Blythe McGarvie, Cristiana Falcone Sorrell, Charles Phillips and William Schwartz.

ISS urged shareholders to withhold support for the same Viacom directors last year. Viacom has said it strongly disagrees with ISS' analysis.

"We are making our company stronger to address our changing industry environment and to position us for long-term success," Dauman said in his prepared remarks. "We are investing in our future and serving our audiences in new ways; and we are building long-term value for you, our shareholders."

He also acknowledged: "There is no question that 2015 was a difficult year, for Viacom and for the entire media industry." He mentioned a revenue decline, as well as lower operating income and net earnings and vowed to position the company for revenue and earnings growth "in the future." Added Dauman: "As the stewards of Viacom’s businesses and as fellow shareholders, we are not satisfied with [the fiscal-year] results, which we know do not represent what we all have come to expect from Viacom."

Dauman said Viacom was following a three-pronged strategy to improve its momentum. First, it is "investing across our company to fuel our rebound," including in fresh content, he said in his prepared remarks. "The appetite for creative, high-quality original storytelling is greater than ever, and we are investing to meet that growing demand. Viacom is now investing about $4 billion annually in programming for our networks in addition to a significant amount in our film business."

Second, "we are transforming to drive innovation, creativity and audience insight," he added. The third focus, Dauman said, was "taking strategic actions that create new opportunities and unlock new value for shareholders." The planned sale of a stake in Paramount falls into that category, along with "targeted acquisitions" and "continued international expansion," he said.