Media

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Hopefully Sumner Redstone doesn't take it personally that shares of both his companies, CBS and Viacom, surged in late trading Wednesday after the announcement that he'd resigned as chairman of CBS. 

Investors are reading into a situation that's more symbolic than an impetus for any big, immediate changes. Redstone turns 93 in May, hasn't been involved in the day-to-day operations of either one of his media behemoths for some time now, and given his age, has recently had his competency come into question. And yet until now, he's held the reins at both.

With CBS Chief Executive Les Moonves now replacing the billionaire, speculation is stirring as far as what will happen to Viacom. Activist shareholder SpringOwl says Viacom should appoint a new chairman, too, and that it shouldn't be Viacom's CEO Philippe Dauman, who along with Redstone's daugther Shari, is part of Redstone's family trust.  (Shari herself on Wednesday said no member of the family trust -- including herself or Dauman -- should  get the job of chairman at Viacom.)

What's important to remember is that Redstone's control over CBS and Viacom stems not from his chairman title, but rather his shareholdings. That control won't be transferred to his family trust until he dies or is found incompetent. And it's not even clear what that transfer will mean for the companies and their minority shareholders. 

CBS and Viacom used to be one company, but Redstone split them up a decade ago, a move that made sense at the time. Lately though, investors and analysts have wondered whether the two would be better off back together, or alternatively, if Viacom -- the laggard of the two -- should pursue some other deal.

Going Their Separate Ways
Redstone's companies have been like bookends for the S&P 500 Media Index. CBS shares more than doubled over the past five years, while Viacom's are up only slightly.
Source: Bloomberg

Pressure has been on television content companies, and it feels like the industry is on the verge of potentially major consolidation. (Just Wednesday, Bloomberg News reported that Lions Gate Entertainment has restarted talks to acquire Starz, billionaire John Malone's $3 billion pay-TV network.)

But as far as CBS and Viacom are concerned, nothing happens unless Redstone or his family trust gives the greenlight. So far he  hasn't, and it's unclear whether the trust is any more open to changes than Redstone is. 

The inner workings and succession plan at CBS and Viacom haven't exactly been transparent. Redstone has left shareholders in the dark about the future of the businesses when he hands over the reins to his daughter, the trust, Moonves and Dauman. It's a situation that would be implausible for much of Corporate America, where succession plans are usually communicated well before you need them (unless, of course, a CEO dies suddenly). 

Take Berkshire Hathaway, for instance. Warren Buffett is 85 years old, and has prostate cancer. And while he is one of very few figuratively irreplaceable CEOs, Berkshire does appear to be quite prepared for when he passes and the $312 billion conglomerate he built needs a new leader. He's never said who his replacement will be, but investors know that he knows, which is good enough for them.

CBS, valued at $23 billion, and $18 billion Viacom are very strong -- even if the industry is getting more challenging with the shift in consumer viewing habits -- and Redstone hasn't been running them himself for years. But he still has tremendous sway over the companies and therefore, he should have figured out a more specific plan and communicated it to shareholders far sooner.

The stocks rose late Wednesday because investors are making all kinds of guesses about what this news means. Right now, it doesn't really mean anything significant -- not yet at least. The same questions investors had before remain unanswered.

But...it's a mini-step toward Redstone's ceding control and allowing for new possibilities. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net