Media

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

MTV's roster of reality shows not doing it for you any more? Then tune into parent Viacom's corporate in-fighting instead. More juicy drama can be found inside its New York City headquarters right now than on its cable-TV networks.

Viacom also owns Comedy Central, but there's not much to laugh about here. There's something unsettling about the fact that a $16 billion company (worth twice that a year ago) can go through such upheaval in its top ranks, and leave minority shareholders pretty much in the dark about little things like the company's fate.

Viacom Stumbles
One of these is not like the others. Viacom has underperformed peers the last couple years as subscribers and ratings declined. Uncertainty over who's calling the shots at the company will only add to the volatility.
Source: Bloomberg

Sumner Redstone, who turns 93 this week and can barely communicate any more, was recently removed as chairman of Viacom (and CBS). Even so, he and his dysfunctional family still wield the power over the two media giants through controlling stock, which will be inherited by a family trust when he passes. So to all the observers who have put on their activist hats this week and proposed that Viacom's fix is to just sell itself: Careful, you're reading from a corporate governance playbook that Viacom simply doesn't follow.

Turning Bearish
Five of the 39 analysts tracked by Bloomberg currently recommend selling Viacom shares. Two years ago, the majority had "buy" ratings. Their average price target has dropped by 50% to around $46.
Source: Bloomberg

If this were a normal situation, sure, a sale would be likely. But it's become clear that the Redstones and the trust are a major block to any big strategic moves, while it's entirely unclear who's running the show. Is it still Sumner? His daughter Shari Redstone? Do the executives and boards have any say at all?

Rather than wasting their time attempting the impossible in pushing for a sale, minority investors (and any sensible voices on the board) would be better off looking for a mechanism through the courts to provide greater transparency. They could even pursue a change of the trust's structure or control, since it's the trust that's making it impossible for the board to fulfill its duty to act on behalf of all investors.

Indeed, it's hard to make sense of the trust at all, given the recent machinations around its membership.

Last week, two former allies of Sumner's were suddenly ousted from the trust: Viacom CEO Philippe Dauman (who recently took over as Viacom chairman too, despite the disapproval of Shari) and Viacom director George Abrams. This renders Dauman's chairmanship almost meaningless because -- as we all know -- it's Sumner and the trust that calls the shots.

The Redstones contend the removal of the two men was Sumner's decision, but Dauman and Abrams are fighting the move, accusing Shari of manipulating her father, whose mental competence has come into question in recent months. Here were the remaining trustees as of Monday (try to resist the lawyer jokes):

  • Tyler Korff, Shari's son (who was 29 at the time of this Vanity Fair article last June) and a lawyer
  • Norman Jacobs, Sumner's divorce lawyer
  • Leonard Lewin, a lawyer who represented Sumner's first wife in their divorce
  • David Andelman, a lawyer who also has a seat on CBS's board

On Tuesday morning, Sumner (or whoever) named the two replacements for Dauman and Abrams: Tad Jankowski, yet another lawyer and an executive at Redstone's National Amusements (the family holding company through which he owns Viacom and CBS voting rights), and Jill Krutick, a longtime media analyst who used to cover Viacom and also served as an executive at Warner Music Group. 

Amid the chaos and confusion, it's easy to understand the anguish of normal non-family shareholders. What's certain is that Viacom can't continue like this much longer; there needs to be a resolution because public companies owe that much to shareholders. Until then, why not turn on some cameras and start filming "Real World: Viacom" to boost those TV ratings.

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

  1. The drama at Viacom hasn't spilled over to his other property, CBS...yet.

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

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net