A newly constituted Viacom board of directors meets for the first time Wednesday in New York with momentous topics at hand: Should the entertainment conglomerate stick with long-time company man Thomas Dooley as CEO? Is it time to sell all or part of the venerable Paramount Pictures, the studio that can’t seem to find a hit? And what to do to shore up declining ratings at cable channels like MTV, Nickelodeon and Comedy Central.
Though some or all of those topics could come before the board, the meeting is more likely to focus intently on year-end budgetary matters and on imposing some discipline on a debt-heavy balance sheet, according to sources inside the company. The larger strategic decisions are unlikely to be sorted out in a single session. The board’s budget review process is expected to extend to Thursday as well, sources said.
The caution about the lack of big decisions this week may not be music to the ears of Viacom shareholders, who have seen holdings lose about half of their value over the last two years — with shares down from their 2014 high of more than $88 a share.The company appears to finally be emerging from a year-long struggle for control that began with a court battle over the mental competency of controlling shareholder Sumner Redstone. Though Redstone won that initial contest, in Los Angeles Superior Court, it paved the way for other legal challenges, including chairman-CEO Philippe Dauman’s bid to keep his seat on the trust that will control Redstone’s majority interest in Viacom once the 93-year-old mogul is gone.
Dauman and fellow Viacom board member George Abrams charged that Redstone, now 93, had become mentally unfit to oversee a $40 billion empire that also includes a majority interest in CBS Corp. The two long-time advisers also charged that Redstone was manipulated into booting them and changing the governance of his company by his daughter, Shari. Lawyers for Redstone responded that the magnate might have grown frail, and sometimes bed-ridden, but that he remained fully capable of making decisions. He said he ousted Dauman and Abrams because they cut him out of the loop on critical corporate business, including his plan to sell a 40% stake in Paramount.
Just as the Redstone/Dauman/Viacom furor looked like it might drag on like a bad telenovela, the three sides reached a settlement last month. It allows Dauman to exit the company this week with a severance package valued at $72 million or more. It puts Dooley, previously COO, into the chief executive’s chair, at least until Sept. 30.
Though Wednesday’s board meeting is unlikely to decide the length of Dooley’s tenure, insiders said they expect the board to meet again by the end of September to hatch a plan — probably to extend his tenure for six months or a year. One investor who holds a major Viacom stake seemed sanguine about that prospect.
“Tom is someone most of Wall Street is comfortable with,” said the investor, who asked not to be named. “He is a very capable guy and has some ideas about what needs to be done to turn things around. On the down side, he is part of the old regime. To extent board wants to make clean break, they could make a move. But the challenge is: there is no obvious better candidate right now.”
The court settlement also spelled out a plan to allow Dauman to pitch his Paramount stake sale. Speculation had it that he would put forward a specific offer, likely from China’s Dalian Wanda conglomerate.
Dauman opted out of the right that he achieved in the settlement deal to personally present to the board a plan for selling part of Paramount. Instead he sent a memo outlining the benefits of selling a stake in the studio that Viacom acquired in 1994 after a hard-fought takeover battle. People familiar with the memo said it was general and theoretical and did not include a specific offer from Wanda or any other suitor. The Chinese conglom had been rumored to pay enough that Paramount, as a whole, would have been valued at $8 billion to $10 billion, although Wall Streeters are skeptical that such a sky-high valuation could have been secured.
“It looks like the Paramount sale is off for now, which is fine,” said the investor. Mario Gabelli, the Wall Street investor who holds another big Viacom stake, has suggested previously that selling a hunk of Paramount to the Chinese would help, by not only injecting new capital into Viacom but by providing a smoother path for entry into the mammoth Chinese market. Gabelli has not sounded off recently about either the Paramount sale, or the other decisions facing Paramount.
Another major stakeholder expects Viacom’s board to soon consider the thorny question of whether it makes sense for the company to attempt to reunite with CBS Corp. Although the Redstone family has overwhelming control of CBS Corp. — which merged with Viacom in 2000 and split off again in 2006 — any deal would still have to be made palatable to the CBS board and shareholders. That’s not an easy task given Viacom’s present situation.
There are no shortage of what-ifs that the new board members, handpicked by Shari Redstone, will probably consider as they dive into the weeds of Viacom’s budget planning. But there are immediate issues to address regarding the need to restructure the company’s $12.4 billion in debt, a leverage ratio of nearly four times earnings ratio that is in danger of reducing its credit rating to junk status.
Many observers predict Viacom’s new board will cut its dividend to raise cash to pay down debt.
“They’ll need to decide to let their credit rating take a hit or cut their dividend or raise cash from selling part of Paramount, though they have hinted they won’t do the latter,” one investor said.
(Pictured: New Viacom board members Ken Lerer, Nicole Seligman, Judith McHale, Thomas J. May and Ronald Nelson)