Viacom, Directors Question Which Redstone’s Pulling the Stringsby and
Legal wrangling continues over 92-year-old’s mental state
Viacom says actions attributed to Redstone ‘inconsistent’
Sumner Redstone was “attentive and as opinionated as ever” when the 92-year-old ousted Viacom Inc.’s top executive Philippe Dauman from his future role as overseer of a family trust, Redstone’s attorney said, terming Friday’s surprise move in the best interests of shareholders.
In response, Viacom said it had received no communication from Redstone, portraying him as a shut-in, and said the actions attributed to him were “completely inconsistent with his long expressed wishes and intent.” A company director derided the latest turn of events as “unsettling and sad.”
Dauman, chief executive officer of the company that owns cable networks MTV and Comedy Central, was informed late Friday by a lawyer representing Redstone that he was being relieved of his duties as a trustee. Another longtime Redstone ally, Viacom director George Abrams, was also told he was being removed. The trustees will control Viacom and CBS Corp. when Sumner Redstone dies or is declared mentally incapacitated.
A spokesman for Dauman questioned the legitimacy of the decision, calling it a move by Redstone’s daughter Shari to seize control of her father’s holdings, which include controlling stakes in Viacom and CBS. The spokesman also said recent court proceedings, in which the billionaire sometimes appeared frail and confused, show Redstone is no longer capable of making such decisions. That’s a departure from Dauman’s long-held stance that Redstone is still mentally fit.
The development is an escalation in the pitched battle between Shari Redstone and Dauman for control of Viacom, the $16.2 billion media conglomerate with 9,200 employees that also includes the Paramount movie studio. Earlier this year, Sumner Redstone stepped down as chairman of the company, and all but one board member chose Dauman to replace him. The holdout was Shari Redstone.
“This is a bad situation that’s getting worse,” said Paul Sweeney, a media analyst at Bloomberg Intelligence. “The news last night, I think, most investors will find shocking.”
Michael Tu, an attorney representing Sumner Redstone, issued a statement late Friday night that said the nonagenarian billionaire “took decisive and lawful action today which he firmly believes is in the best interests of Viacom Inc. and its stockholders.”
Dauman and Abrams were removed as trustees and directors of National Amusements Inc., the family holding company, after Sumner Redstone “expressed his concerns regarding Viacom’s performance” to the pair and received no response, Tu said. The pair are consulting with their attorneys about appropriate responses, including possible legal action, a person familiar with the matter said.
The statement from a Dauman spokesman suggesting that Redstone was no longer competent “is disappointing and incorrect, as reflected by Mr. Dauman’s own testimony given under oath less than six months ago,” said Tu, adding that Redstone is as “engaged, attentive and as opinionated as ever. That is exactly the Sumner Redstone who made these decisions.”
If Dauman is unable to reverse his ouster as a trustee, his position as Viacom’s CEO could be undermined, a remarkable fall from grace for Redstone’s longtime confidant. Dauman, 62, already was replaced by Shari Redstone, 62, as the person to take control of her father’s health-care decisions this year amid a bruising court fight that included one of Redstone’s former girlfriends.
Sweeney said the news adds another level of uncertainty for investors. “I expect the stock to be increasingly volatile,” Sweeney said in a telephone interview. “This may set off another round of litigation and calls into question how secure his position of CEO is at the company.”
The news also could jeopardize Dauman’s plan to sell a stake in Paramount by the end of June, a move designed to help the media company pay down debt while helping the ailing studio recover market-share losses. Viacom’s media business has also struggled to recover from ratings declines, and the stock is down 41 percent over the past year.
Dauman called the steps to remove him as a trustee invalid and illegal.
“They are a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone’s name and signature,” a spokesman for Dauman said in an e-mailed statement. “As she knows and as court proceedings and other facts have demonstrated, Sumner Redstone now lacks the capacity to have taken these steps.”
Shari Redstone said Saturday in an e-mailed statement that “I fully support my father’s decisions and respect his authority to make them.”
A Viacom spokesman said “not a sound was heard” from Sumner Redstone, connected by telephone during a strategy meeting with Viacom’s board on Tuesday and Wednesday. “The actions taken yesterday in Sumner Redstone’s name are completely inconsistent with his long expressed wishes and intent, and extremely disruptive and damaging to Viacom and all its shareholders,” Viacom spokesman Carl Folta said in an e-mailed statement on Saturday.
“The picture is quite clear; Mr. Redstone is being manipulated and used by his daughter in an attempt to accomplish her long-held goal, which Mr. Redstone has always opposed, of gaining control of National Amusements and Viacom,” Folta said in the statement. The elder Redstone’s residence is “on lockdown,” he said.
Redstone’s National Amusements owns 39.4 million Class A Viacom shares, or 80 percent of the company’s voting rights, according to data compiled by Bloomberg. The holding company received about $63 million in the past year based on Viacom’s quarterly dividend of 40 cents. National Amusements also owns 80 percent of the voting shares of CBS, run by Chairman Les Moonves, who has the support of both Sumner and Shari Redstone.
The move to oust Dauman as trustee comes after the Viacom board on May 18 was said to have stopped paying Sumner Redstone, who stepped aside as chairman of both Viacom and CBS in February in the middle of the ex-girlfriend’s court case that challenged his mental capacity.
Frederic Salerno, Viacom’s lead independent director, said in an e-mailed statement Saturday that the board has taken a number of steps including eliminating Redstone’s compensation to ensure that shareholders’ interests are considered and protected.
“We took this action based upon his recent complete lack of communication with the Viacom Board and management team and his silence during recent board meetings, as well as recent public disclosures raising concerns about his health,” Salerno said in the statement sent by the company. “In addition, despite numerous requests, I, along with the Chair of Viacom’s Governance and Nominating Committee, have been denied access to Sumner for a face-to-face meeting.”
Salerno said the directors “fully endorse” the strategy for the company’s future presented by the team at the Board’s strategy meeting this week.
Viacom Director George Abrams also reacted, saying he has known and represented Sumner Redstone for more than 50 years. “The Sumner Redstone I knew would never have taken this action,” Abrams said in the statement through the company. “What is going on now is unsettling and sad.”
The elder Redstone this month defeated the attempt by Manuela Herzer, 52, to have herself reinstated as his health-care agent. She claimed Redstone lacked capacity when he had her evicted from his mansion in October and took her off his health-care directive as well as out of his will. Her petition in probate court put the spotlight on Redstone’s frail health as well as on the family infighting.
Redstone’s saga is continuing to play out in court. The same day a probate judge dismissed the case, Herzer sued Shari Redstone and her two sons, along with members of the elder Redstone’s household staff, over claims they interfered with her expected inheritance. Shari Redstone has called that lawsuit a “baseless attack” and “total fiction.”
Fortune reported earlier that Dauman had been informed of his ouster as a trustee.