Viacom Stock Rises Amid Battle for Trust That Will Control Company

Sumner Redstone_Philippe Dauman Split - Getty - H 2016
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Sumner Redstone_Philippe Dauman Split - H 2016

Analysts discuss how Sumner Redstone could remove Philippe Dauman as Viacom CEO and stop the planned sale of a minority stake in Paramount Pictures.

Viacom shares bucked a downward Wall Street trend Monday by closing 2 percent higher, signaling that investors aren't concerned about a feud that erupted over the weekend between chairman emeritus Sumner Redstone and CEO Philippe Dauman.

On Friday, Redstone booted Dauman and Viacom board member George Abrams as members of the trust set to take over voting control of the entertainment companies when the ailing Redstone dies or is declared incapacitated.

Viacom's stock closed at $39.95 Monday after earlier going as high as $40.97. CBS, where Redstone is also chairman emeritus, closed slightly lower, as did the S&P 500.

Viacom's stock has traded between $30.11 and $69.17 over the past year. It was down nearly 40 percent over the past 12 months as of Friday night amid TV ratings and advertising challenges at the company's young-skewing cable networks and criticism of management. Dauman has looked to new ratings measurements and ad offers and an expansion of Paramount Pictures' TV production business, among other things, as growth opportunities. His team has also been looking to sell a minority stake in Paramount. 

CBS investors have been wondering how the seven-person trust that will eventually control both companies could affect the company. Trustee and Redstone daughter Shari Redstone is known to have a good relationship with CBS Corp. chairman, president and CEO Leslie Moonves, but she opposed Dauman's ascension to the chairman role at Viacom earlier this year. Some had wondered, before the late Friday news, if the trust could eventually lead to a showdown between Dauman and Moonves.

The news of Dauman's ouster just before the weekend apparently came via fax from Redstone, who will turn 93 on Friday. The fax informed Dauman and Abrams that Redstone was replacing them as directors of National Amusements, the family holding company that controls his 80 percent voting stake in Viacom and CBS, and the trust that will take over when Redstone is out of the picture.

Dauman, a longtime Redstone confidant and his personal lawyer before taking the reins at Viacom, and Abrams, considered a Dauman ally, on Monday announced the filing of a lawsuit challenging their removal from the Sumner Redstone National Amusements Trust.

Dauman had fired back Friday night in a statement to The Hollywood Reporter. "These steps are invalid and illegal," Dauman said through a spokesperson. "They are a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone's name and signature. As she knows, and as court proceedings and other facts have demonstrated, Sumner Redstone now lacks the capacity to have taken these steps."

Credit Suisse analyst Omar Sheikh in a report said Dauman's position as Viacom CEO could be called into question next. "If it is true that the controlling shareholder is unhappy with Viacom's performance, this suggests Redstone could at some point seek to use his circa 80 percent voting interest to remove Dauman from the CEO role, as he has done with former CEOs in the past," he wrote. "It is clear from public statements from the Viacom board that they fully support Dauman, but it is hard to see how they could prevent his removal if that is, in the future, Redstone's wish."

Sheikh added that Redstone could also "at some point seek to use his voting interest to halt the sale of a partial stake in Paramount," which Dauman has been planning to conclude by the end of June, but Redstone's representatives have said the mogul opposes such a deal.

With Dauman in his reaction to the late Friday moves questioning Redstone's capacity, the analyst added that "this puts pressure on the boards of both Viacom and CBS to take steps to protect the interests of minority shareholders in both companies by independently verifying Redstone's mental competency."

And Sheikh said Dauman and Abrams could legally challenge their removal from the trust. The analyst said, "We would argue that the outcome of such a challenge would likely need to be seen before the boards of Viacom or CBS can decide on the appropriate course of action for both companies." 

In another analyst's report on the showdown between the moguls, Wunderlich Securities' Matthew Harrigan wrote Monday: "Viacom is making some operational progress ... but the new infighting at least temporarily supports the bears."