Viacom in Turmoil: Will Shari Redstone Succeed in Seizing Control of Her Father’s Empire?

On the night of May 27, Sumner Redstone celebrated his 93rd birthday at his Beverly Park mansion, an intimate party for family members thrown by his daughter, Shari Redstone.

The two had much to celebrate. The ailing Redstone, whose health had appeared to be worsening by the day, had supposedly been regaining strength after a brief hospital stay. Shari had made up T-shirts for the occasion with the triumphant rallying cry “Sumner’s back!”

No doubt father and daughter were also popping champagne bottles over news that broke early that morning that the board of Viacom and its embattled chairman/CEO, Philippe Dauman, appeared to be on the verge of being swept out of the publicly held media company by controlling shareholder Sumner Redstone.

Lyndon Hayes for Variety

This is the latest salvo in a series of extraordinary developments in what has become a closely watched corporate soap opera that has put Shari Redstone firmly on course to win control of her father’s $40 billion media empire. Call it a real-life “Seven Days in May.”

There will be plenty of skirmishes yet to come, in the courts of law and public opinion. Dauman has been left on the ropes, fighting what looks increasingly like a losing battle to keep his job. Other longtime associates of Sumner Redstone are taking aim at Shari, branding her as Machiavellian in manipulating her father in his decline to achieve her own ends. In truth, their worst accusations only prove she’s a chip off the old block.

By many accounts, Shari has no intention of inserting herself as the day-to-day leader of Viacom or CBS Corp., though she has been an active voice as vice chairman and a director of both companies and has been acting in large part out of familial pride and concern for her father’s legacy as a media baron, according to sources close to the Redstone camp.

But like her father, she wants to exert the high-level authority afforded by his control of 80% of the voting rights in Viacom and CBS.

While CBS Corp. is performing well under the leadership of chairman/CEO Leslie Moonves, Viacom has suffered a series of stumbles in recent years that have taken a toll on the value of its assets, which include Paramount Pictures, MTV, Nickelodeon, and Comedy Central. The elder Redstone in his prime would not have stood still in the face of a 50% decline in Viacom’s share price during the past two years; events of the past year have proved that his daughter won’t either.

Shari’s decisive move came May 20, when Dauman and George Abrams, Sumner Redstone’s longtime attorney, were ejected as board members from the media baron’s National Amusements holding company and from the trust that will oversee his vast fortune after his death. That blow sparked a lawsuit by Dauman and Abrams and volleys of statements from both sides that gave Redstone’s reps the opportunity to publicly criticize Dauman’s management of Viacom and his plan to sell a minority interest in Paramount. The mood among Viacom’s top leaders was so fraught on the morning of May 27, sources say, that a frustrated board member called CNBC anchor David Faber to assure him that he and his peers on the board were prepared to go to court if ousted en masse, as The Wall Street Journal had reported the day before.

By day’s end, speculation about potential Dauman successors as CEO was growing. At the top of Shari’s wish list appears to be Tom Freston, the longtime MTV Networks chief who was unceremoniously ousted as Viacom CEO in September 2006 by her father and replaced by Dauman. The return of Freston likely could be sold to Viacom employees and Wall Streeters as the start of a major comeback narrative. (Whether Freston, who has been active as a private investor, is prepared to take on that starring role is still unclear.)

Mario Gabelli, Viacom’s second-largest shareholder, behind the Redstone clan, stopped short of calling for Dauman’s ouster as rumors swirled. But in an interview with CNBC, Gabelli said restoring the creative juices at Viacom’s Paramount Pictures and its cable networks was the key to turning the company around.

“Do you put CBS and Viacom back together? If I am a CBS shareholder, I have to be saying, ‘I have a good company, and they have a bad company.’ ”
Analyst Rich Greenfield

“The next [goal] is to get some financing [and] get some content back into Paramount … in TV series and digital distribution,” Gabelli said.

The ascendance of Shari and rejection of Dauman, both 62, represents a stunning reversal of fortune for both. The elder Redstone has in the past called Dauman, his longtime estate lawyer before his CEO appointment, “my close friend” and, as recently as 2012, “the wisest man I ever met.”

Shari has experienced both her father’s approbation and his disdain. He described her as someone who everyone should meet, and once suggested she was his heir apparent. But in 2007 when she confronted Sumner about issues of succession and corporate governance at Viacom, he snapped. Even after many successful years running the family theater chain, National Amusements, her father told the press that she had made “little or no contribution” to his business empire. “I put you in there and you have the gall to oppose me?” was Sumner’s position, according to a person in the inner Redstone circle.

Sumner’s assessment of having “put” Shari in National Amusements suggests that she was begging to be in the family business. Quite the opposite was true. In 1994, Sumner prevailed upon his daughter to come run the family theater circuit in Dedham, Mass., started by his father. At the time, she was home raising her three children after having given up a successful practice as a prosecuting attorney.

He also tried to buy out her stake in his vast holdings, worth more than $5 billion. A sign of her tenacity came in late 2014, when she rejected his $1 billion offer for her 20% interest in National Amusements.

Shari and her father stopped talking to each other as the ugly feud was played out on a public stage — an excruciating experience for someone as private as Shari Redstone.

Only last year did the two patch up their relationship.

Today, Boston-based Shari is spending at least a third of her time in Los Angeles, overseeing her father’s care. The week before his birthday, Sumner had a health scare and was hospitalized, but after a battery of tests, he was diagnosed with dehydration. That same week, Dauman filed suit alleging that Redstone is in “dramatic decline.” According to the lawsuit, he can no longer stand, walk, or communicate. He cannot eat or swallow. Nurses are at his side 24 hours a day with a suction tube to prevent him from choking on his saliva.

Dauman charges that Shari has isolated her father at his home in a gated enclave above Beverly Hills and used undue influence to keep him from his closest friends and advisers. Shari’s spokesperson offers a terse response: “We are looking forward to an expedited dismissal of this meritless suit.”

The ouster of Dauman and Abrams from National Amusements and the trust comes less than a month after a Los Angeles judge threw out an attempt by former Redstone companion Manuela Herzer to be restored to her position as Sumner’s live-in health-care agent. The judge did not rule on competency. But Redstone’s performance on a
psychiatrist’s exam was poor, and his responses during a videotaped deposition were lackluster — raising doubts about what might happen if Dauman’s lawsuit were to come to trial.

Calmer Times: Philippe Dauman, Sumner Redstone, Brad Grey, and Leslie Moonves at Redstone’s Walk of Fame ceremony in 2012 (left); Sumner and Shari Redstone in 2012
Left: Alex J. Berliner/ABImages; Right: Katy Winn/Invision for LA Friendly House/AP Images

Shari’s return to her father’s life has been a major solace to her, her children, and her grandchildren, who one day will be beneficiaries of the Sumner Redstone Trust, say people close to the family. Analysts, shareholders, and entertainment industry voyeurs have been riveted by the spectacle as well, particularly over the fallout for Viacom.

Viacom took its current form a decade ago, when it was split up from CBS Corp. just six years after the two companies merged in a mega deal orchestrated by Sumner Redstone. Since then, Viacom has suffered from viewership declines at its once-prosperous cable networks, and Paramount’s routinely dismal performance at the box office.

CBS is now the richer part of the Redstone kingdom, but Viacom remains its heart. Sumner Redstone acquired the company in 1987 and groomed its properties with investments and acquisitions, culminating in 1994, when Viacom won a pitched battle against Barry Diller to buy Paramount Pictures for $10 billion. Today, the studio’s output and market share has shrunk so much that it is valued at around $5 billion. That’s a defeat that flies in the face of Redstone’s famous dictum: “Content is king.”

“Do you put CBS and Viacom back together?” says Rich Greenfield, an analyst with BTIG. “If I am a CBS shareholder, I have to be saying, ‘I have a good company, and they have a bad company. I don’t want the transfer.’ But Viacom shareholders would probably like it.”

Shari Redstone cast the lone vote in February against Dauman’s ascension to the executive chairman’s post that her father left vacant. But other moves she might make as the newly empowered controlling shareholder remain unknown.

Credit: Ryan Stone

Shari declined to speak about Dauman or answer other questions last week but did give Variety a statement about her management philosophy. “In building a management team, I look for integrity, loyalty, vision, and a willingness to think outside of the box, and challenge the status quo,” she said. “I also look for people who have a good sense of humor and who value and empower their team.” It was not lost on close observers that Shari ticked off some leadership qualities that critics have said Dauman does not possess.

The best hints about Shari Redstone’s future initiatives might come from her investment firm, Advancit Capital. The 5-year-old concern, operated with her son-in-law, Jason Ostheimer, focuses on media and tech startups. She is impatient to have Viacom push more aggressively into the digital arena, especially as the company bleeds younger customers.

Shari Redstone’s re-emergence in news related to Viacom began in earnest in October, when Sumner’s estate lawyer ejected Herzer, the mogul’s longtime companion, from the Redstone mansion. (Sometime girlfriend Sydney Holland had been forced out just weeks earlier.)

The two women had made it difficult for Shari and her children to visit, Shari claimed. Her return to the fold was cemented in early May, with the rejection of Herzer’s lawsuit.

After that decision, Shari stood in the courthouse hallway and wept. Her relief may have been short-lived, though: Herzer immediately said she would appeal and filed a new lawsuit, seeking to have her position in Redstone’s estate affirmed.

Viacom’s Stock Plummet: The share price has fallen in half in two years.
Click Image for large preview

Sumner protégé Dauman, meanwhile, was not making his mentor happy, people close to Redstone insist. They attach Redstone’s displeasure to three events in which he believes Dauman and Viacom leaders did not properly include him: the early February end of his tenure as executive chairman; the late February bid by the conglomerate to sell a 40% stake in Paramount; and the move, in mid-May, to expunge the final $2 million of Redstone’s annual pay.

Redstone’s allies insist that he did not give approval to sell a stake in Paramount. Even if his concern wasn’t clear initially, it should have become evident by April, when The Wall Street Journal reported that Redstone was displeased with the move. “He is feeling cut out and not heard at that point. And he is furious,” says a source.

Dauman’s camp says the complaints about Viacom shutting out Redstone arose after Shari re-entered her father’s life. In Dauman’s suit, which aims to restore him as a trustee and board member of National Amusements, he charges that Shari has taken over the mogul’s life, in an attempt “to dismantle his estate plan to serve her own interests and to assume control of his businesses, which he long refused her.”

The question of what Redstone truly believes could be a thorny one to resolve. His deposition in the Herzer lawsuit showed he has trouble communicating. Dauman’s camp is raising doubts about whether Redstone is directing the lawyer and others who claim to be delivering his opinions to the world. Sudden changes in personal allegiances by the aged are viewed as a possible sign of manipulation, experts have said. Yet by even doubting Redstone’s new resolve and directives, Dauman and his lieutenants are further infuriating the billionaire, an individual in his camp contends. Another source close to Redstone says that despite his difficulty speaking, as of a few weeks ago he was “feisty as ever.”

“Shari’s return to her father’s life has been a major solace to her, her children, and her grandchildren”
Family Insider

A Viacom spokesman flatly rejected the claim that Redstone had been left out of the loop. The Viacom action to remove Redstone’s chairmanship came shortly after CBS made the same move, and Dauman talked to Redstone about his diminishing role, the spokesman says, adding that Redstone joined other board members in approving his transition to emeritus status.

Similarly, Dauman has told people that he went to Redstone a week before he revealed in February that the corporation would shop part of Redstone’s beloved movie studio. “He didn’t get upset. He didn’t get agitated,” says the spokesman, adding that Redstone also did not raise objections during three subsequent board meetings to discuss putting the Paramount stake on the block.

The Viacom official says the conglom’s lead independent director and others repeatedly reached out to Redstone to address the salary question and other issues, but got no response.

With the furor showing no sign of settling last week, Dauman sought to rally his employees with an all-staff email, vowing to move beyond the “distraction” and to keep “moving our company rapidly and successfully into the future.”

But analysts do not see peace coming to Sumner’s World any time soon. “If you think your boss’s boss’s boss is going to be fired, that means your boss’s boss will be fired, and then your boss will be fired and then you may not have a job,” says Brian Wieser, an analyst at Pivotal Research Group.

One glimmer of relief followed all the sound and fury. By the close of trading on May 27, Viacom shares had ticked up nearly 12% in just one week. Shareholders seemed to welcome the prospect of any kind of change, and Wieser was not surprised.

“Any alternative,” the analyst says, “is better than the current situation.”

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