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Sumner Redstone’s Shadow Looms Over Viacom Succession Drama

Sumner Redstone always dismissed questions about succession for the management of his controlling interests in Viacom and CBS with a grin and a quip about his plan to never retire and live forever. But now many observers believe those deferred decisions are taking a toll on his beloved media empire.

The drama regarding corporate governance of the two publicly held branches of Redstone Inc. — CBS Corp. and Viacom — came to a head last week, with the 92-year-old mogul’s resignation as executive chairman of both companies. That came after pressure from investors who questioned Redstone’s ability to function in the role, given his failing health.

Shareholders who were already on edge about Viacom’s flagging performance watched the public fight erupt between Redstone’s daughter Shari and Philippe Dauman, the mogul’s longtime confidant and lawyer, who has served as CEO of Viacom since 2006. Shari Redstone went public with her opposition to Dauman assuming the Viacom chairmanship by asserting in a statement that the leaders of Viacom and CBS should be independent from the seven trustees (including herself and Dauman) who will oversee the family trust that will inherit Sumner Redstone’s controlling interests in the two media companies after his death. Shari Redstone was the lone dissenting vote among the 11 Viacom board members who elected Dauman as chairman Feb. 4.

“Many studios, such as Malone-backed Lionsgate, would love to have Paramount.”
Barton Crockett, analyst

Her opposition to Dauman was magnified in the public eye by her immediate approval of the election of Leslie Moonves as her father’s successor at CBS. The Redstone family saga of wealth, power plays, triumph and loss, internecine battles and shifting alliances has long been a corporate telenovela for media-biz watchers. The conflict laid bare between Shari Redstone and Dauman last week sets the stage for future collisions, which does nothing to help Viacom’s cause.

“There’s going to be more jockeying for control,” said media analyst Matthew Harrigan, of Wunderlich Securities. “The activist (investors) are not going to be happy with Philippe’s elevation, although the legal issues regarding Sumner’s potential problems have been addressed.”

As the boardroom showdown played out last week, prominent Wall Street analysts pulled no punches in describing the state of affairs at Viacom’s core cable networks and Paramount Pictures unit. To be sure, Viacom’s channels are caught up in sector-wide problems of measurement and shifting viewing habits, particularly among the younger demographics that were long the bastion of MTV, Nickelodeon and Comedy Central.

But Viacom’s properties went into those headwinds with ratings woes and programming challenges, which makes their rebound that much harder. Prominent investors have called for dramatic steps to improve profitability through asset sales that would break up the conglomerate Redstone built in the 1980s and ’90s.

Viacom CEO Philippe Dauman, left, has been a longtime confidant of Sumner Redstone.
UPI/Jim Ruymen via Newscom

“Philippe has to do something,” said Mario Gabelli, chairman of Gamco Investors, the second-largest shareholder in Viacom after Redstone. Gabelli stopped short of criticizing Dauman’s appointment as chairman, but he called for a “change in philosophy” at the company, such as selling a stake in Paramount Pictures to Jack Ma’s Alibaba or another major investor.

Todd Juenger of Bernstein Research was negative on Viacom’s prospects: “Regardless of who’s running the company, we don’t think anything can be done anymore to fend off the inevitable decline of (Viacom’s) key businesses, and we don’t think M&A will bail them out, as we see no buyer for most of its assets.”

Barton Crockett, analyst with FBR Capital, sees a different scenario that would involve a carving up of the cable networks and Paramount.

“Many studios, such as (John) Malone-backed Lionsgate, would love to have Paramount,” Crockett wrote. “A wide range of conglomerates, we believe, would love to have Viacom’s international networks. We think top executives at most major media conglomerates believe they could program Viacom’s domestic cable networks better than the current situation. All segments’ margins could be boosted with big cost cuts and brand streamlining.”

Sum of Its Parts
Wall Street’s valuation of Viacom assets
$17.8b Market cap (as of Feb. 4)
$21.8b U.S. cable networks
$4b Paramount
$3.1b International cable networks
$1.5b Unconsolidated assets
$12.3b Total debt (as of Sept. 30, 2015)
Source: MoffettNathanson Research, company reports

The notion that Viacom could be split up would have been unthinkable just a few years ago, before Sumner Redstone went into a decline inevitable with age. Longtime Redstone-watchers say that had he been running at full steam, the magnate, who built one of the nation’s largest media conglomerates on the back of a family chain of New England drive-in theaters, would likely have recognized that the moment to merge or sell had come for his corporate offspring.

Friends of Sumner Redstone express sadness at the fact that the winter of his life has been enveloped in turbulence and tabloidy headlines. Former girlfriend Manuela Herzer has divulged intimate details about their relationship in court as part of her legal effort to regain control of his healthcare directive, another battle that has ensnared Dauman and Shari Redstone.

The final chapter of Redstone’s remarkable career will be determined by what happens over the next few years with Viacom and with CBS Corp. But no matter how messy the moment is now, the Boston-bred tycoon with bulldog instincts will remain a legend of his era, according to longtime friends such as Leonard Goldberg, a veteran producer and CBS Corp. board member.

“Sumner’s legacy will live on,” Goldberg said. “And it is a great legacy when you look at all he has built.”

James Rainey and Brent Lang contributed to this report.

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