Viacom Flags ‘Purported Bylaw Amendments’ as Obstacles to Paramount Sale

UPDATED: Viacom has formally alerted its shareholders that the bylaw changes implemented earlier this week by parent company National Amusements could be an insurmountable obstacle to CEO Philippe Dauman’s plan to sell a 49% stake in Paramount Pictures.

In a Securities and Exchange Commission filing Friday, Viacom said the likelihood that controlling shareholders Sumner Redstone and Shari Redstone would block any sale of Paramount could have an “adverse” effect on the company’s shares, which have slumped more than 30% during the past year. Speaking at an investor conference on Thursday, Dauman reiterated his intention to pursue the Paramount stake sale.

The filing also indicated the legal challenge that Dauman has initiated regarding his removal as a board member of National Amusements last month in its reference to “Purported Bylaw Amendments.” Viacom was obligated to disclose those bylaw changes in an SEC filing because of their material impact on the company. But the filing also asserts that those bylaw amendments “may be determined to be invalid and void as well” if the courts side with Dauman.

A news report that followed the regulatory filing suggested, however, that Redstone’s camp is not unconditionally opposed to the sale of a portion of Paramount. National Amusements is seeking opinions on options for the studio, which has under-performed in recent years, according to a report by Reuters.

A source familiar with the holding company’s position said it does not differ from the position attributed to Redstone in the past — that he possibly would support sale of a stake in Paramount (which he has called “my baby”) but only once he is persuaded that the move would enhance the value of Viacom as a whole. The investigation by bankers is a part of that review not a separate sales process from the one contemplated by Dauman, the source said.

The removal of Dauman and fellow Viacom board member George Abrams from the National Amusements board paved the way for National Amusements to rewrite Viacom’s corporate bylaws to expressly require any sale of Paramount be approved unanimously by the Viacom board of directors. Sumner and Shari Redstone are Viacom board members. Both have expressed their disagreement with the plan to sell an interest in the studio, at least before a thorough review of options.

Related Content Sumner Redstone Changes Viacom Bylaws to Make Paramount Sale More Difficult

“The Purported Bylaw Amendments … would therefore have an adverse effect on the ability of the Company to assess fully the extent to which potential investors would be interested in making a value-enhancing investment in Paramount and, by harming the process and providing each of Mr. Redstone and Ms. Redstone with a veto over any such transaction, would, in light of the foregoing and unless they change their positions, have the effect of preventing it entirely, even if such a transaction would otherwise create value for other stockholders of the Company,” the filing states. “The constraint imposed by the Purported Bylaw Amendments could therefore have a significant adverse effect on the Company’s share price.”

Dauman and Abrams were also removed from the board of the trust that will oversee Sumner Redstone’s holdings after his death.

National Amusements’ move to amend Viacom’s corporate bylaws adds a new dimension to the legal fight as it directly brings Viacom into the matter that previously affected Dauman and Abrams as individuals. A Massachusetts probate court judge heard arguments Tuesday on Dauman and Abrams’ challenge to their removals, asserting that Shari Redstone is manipulating her ailing 93-year-old father for her own gain.

More movement in the case is expected by the end of the month. The court is awaiting the filing of a motion from the Redstone camp to dismiss the Dauman/Abrams’ challenge. The Redstone side has also asked that the venue be shifted to California where Sumner Redstone lives.

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