Viacom Braces for New CEO by Cutting Dividend, Profit Forecast

  • Interim chief Tom Dooley will leave the company in November
  • Viacom halved its dividend to 20 cents; will boost liquidity

Viacom Inc., reeling from a legal battle for control of the media giant and hamstrung by more than $12 billion in debt, cut its quarterly dividend in half and said interim Chief Executive Officer Tom Dooley will leave.

Viacom slashed the dividend to 20 cents a share and said it plans to access debt markets “shortly” to boost liquidity, according to a statement Wednesday. The owner of cable network MTV has $1.4 billion of debt maturing over the next year, and more than $10 billion owed on top of that.

The Viacom board, which added five new members this year, has been meeting over the past week to determine a strategy for reinvigorating a company whose sales, profit and stock price have fallen for two years. The company’s poor performance and mounting debt forced leadership to rethink its resistance to a potential downgrade from credit raters, with bonds already trading close to junk-like yields.

After the board reviewed the company’s capital structure, it decided it’s willing to let the credit rating fall below investment grade, according to a person with knowledge of the matter who asked not to be named discussing corporate strategy.

Shares, Bonds

Viacom’s Class B shares, down 55 percent in the past two years, fell 0.6 percent to $35.94 at 11:51 a.m. in New York. The company’s $1.44 billion bond maturing in 2043 fell 1.3 cents on the dollar Wednesday to trade at 85.2 cents at 10:22 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. 

Dooley declined an offer to keep running the company, the person said. He will step down in mid-November, and the board, led by Chairman Thomas May and Vice Chairman Shari Redstone, is working to name a replacement by then.

“What Viacom has lacked is a CEO with any content experience,” said Tom Eagan, an analyst with Telsey Advisory Group in New York. “Its’ been run by lawyers and finance people. The best media companies run by balance.”

Dooley’s relationship with Viacom predates controlling shareholder Sumner Redstone, who acquired the company in 1987. Well-liked on Wall Street, Dooley was a remnant of the prior regime and a close ally of ousted CEO Philippe Dauman. The two left Viacom together in 2000 to start a private equity firm, and rejoined together in 2006.

Dauman fought his ouster by the Redstone family in public and in court all summer, claiming Sumner, 93, was being manipulated by his daughter Shari. Dauman relented in August, ceding his perch atop the company to Dooley, who had been chief operating officer.

“We have all worked very hard to reposition the company in an ever-evolving business environment that is highly competitive, and increasingly global and digital,” Dooley said in a memo to staff.

The ouster of Dauman was the culmination of a legal fight for control of the company that pit the CEO against the controlling shareholder. Dauman had been exploring the sale of a minority stake in its Paramount Pictures division, plans the company said Wednesday it has abandoned.

The next CEO will be charged with turning around a media company that has ceded its position as arbiter of pop culture to YouTube, Netflix and social media apps like Snapchat.

The company forecast fiscal fourth-quarter earnings that were far below what analysts were projecting. Profit excluding some items will be 65 cents to 70 cents a share in the period ending this month, the company said. Analysts had predicted 92 cents, the average of estimates compiled by Bloomberg. The company said it would take a $115 million “programming impairment charge” in the period related to an unreleased film.

“The imminent departure of Tom Dooley will leave investors worried about the next chapter in corporate development and if/when/how Viacom can make a meaningful turnaround,” Steven Cahall, an analyst with RBC Capital Markets wrote in a note Wednesday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE