Mario Gabelli, Wall Streeters Urge Action at Viacom Following Boardroom Battle

Viacom settled one question about its future on Thursday with the board’s election of Philippe Dauman as chairman succeeding 92-year-old mogul Sumner Redstone.

But the company still faces many more questions about its long-term strategic focus as prominent investors urged the company to take steps to protect shareholder value. Mario Gabelli, the second-largest shareholder in Viacom behind Redstone, 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.

“Phillipe has to do something,” said Gabelli, chairman of GAMCO Investors, who owns 5 million Viacom shares. “Philippe has six to 12 months,” Gabelli said, adding that he was speaking not of a formal deadline but of future earnings results that will be closely watched. “You have another fiscal year coming and ‘Ninja Turtles,’ ‘Ben Hur,’ and ‘Star Trek’ are not necessarily going to pull it off for them,” added the outspoken investor, referring to upcoming Paramount films.

See More: Philippe Dauman Replaces Sumner Redstone As Viacom Executive Chairman

Gabelli said proceeds from such a sale could be used by Viacom to branch into areas where it has lagged, like an over-the-top service or expanded programming.

Viacom shares soared in after-market trading on Wednesday amid speculation about the Sumner Redstone resignation. On Thursday, shares were up at the start of trading but fell after the news of Dauman’s election was released. The stock closed Thursday up 1.5% to $45.34.

Some investors were vocal in opposing the election of Dauman to the chairman’s post. Gabelli did not criticize the Viacom board but praised Viacom vice chair Shari Redstone for the “very articulate” case she made regarding governance of CBS and Viacom.

Shari Redstone said in a statement Wednesday that she believes the leaders of CBS and Viacom should be independent from those who oversee the trust that will inherit her father’s controlling stake in CBS and Viacom. That list of trustees includes Dauman and Shari Redstone. Shari Redstone voted against Dauman’s appointment and declined the job of non-executive chairman, which was offered to her per the terms of her family agreement with her father. Sumner Redstone, on the other hand, voted for Dauman.

One of the most vocal critics of Viacom in recent months has been SpringOwl Asset Management. When the prospect of Sumner Redstone’s resignation emerged on Wednesday — after the Redstone-controlled CBS went through the same process of electing Leslie Moonves as his successor — SpringOwl called for the job to go to someone other than Dauman.

“We are disappointed with the company’s decision to appoint Philippe Dauman as executive chairman. It raises questions about the board, corporate governance and fiduciary duties. As evidenced by the negative reversal in the stock price, the market agrees with the position of both SpringOwl and Shari Redstone that someone other than Philippe Dauman should be the Chairman,” SpringOwl said in a statement.

Wall Street analysts noted that the swirl of activity around both CBS and Viacom promises to heighten their profile as eventual acquisition targets. Investors figure that once Sumner Redstone’s shares pass into the family trust, there will be openings for mergers and acquisitions, whether the two are buyers or sellers.

“We read reports of a split between Shari Redstone and Philippe Dauman as creating a backdrop ripe for potential overtures that could be positive for equity value, somewhat contrary to the initial stock reaction that had the shares rally on reports of a chairman change, and then ease up on news that CEO Philippe Dauman got the nod,” Barton Crockett, analyst at FBR Capital wrote on Thursday.

Todd Juenger of Bernstein Research was unabashedly negative on Viacom’s prospects: “Regardless of who’s running the company, we don’t think anything can be done anymore to fend off 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 (Viacom’s) assets.”

FBR’s Crockett sees a different scenario that would involve a carving up of the cable networks and Paramount.

“Many studios, such as (John) Malone-backed Lions Gate, would love to have Paramount. 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,” Crockett wrote.

Viacom shares soared in after-market trading on Wednesday amid speculation about the Sumner Redstone resignation. On Thursday, shares were up at the start of trading but fell after the news of Dauman’s election was released. The stock closed Thursday up 1.5% to $45.34.

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