Redstone to Keep Dauman on Viacom Board During Control Fight

  • Redstone, ousted directors file proposed ‘status quo’ order
  • Order to govern Viacom’s daily operations during litigation

Billionaire Sumner Redstone has agreed to let Philippe Dauman continue running Viacom Inc. while proposing to limit the chief executive officer’s room to maneuver as the fight for control of the media empire plays out in court.

Redstone, along with Dauman and other directors ousted from the Viacom board earlier this month, proposed Monday that the company’s management stay on while a judge decides whether Redstone can remove them legally, according to Delaware Chancery Court filings.

The so-called status quo order would require Dauman to give five-days’ written notice before making any moves involving the Paramount movie studio, according to the filings. Dauman proposed in February to sell a stake in Paramount, which Redstone opposed, setting up the clash between the two.

The proposed order covers the “routine day-to-day operations of Viacom and its subsidiaries” as Delaware Chancery Judge Andre Bouchard considers whether Redstone properly removed Dauman, Fred Salerno and other directors in his bid to reassert control over the media conglomerate. Bouchard hasn’t yet approved the request, filed June 24.

Common Practice

Such orders are commonplace in corporate-control fights, said Larry Hamermesh, a Widener University law professor who teaches about Delaware corporate-law and governance issues.

“These orders are put in place to insure the company can continue to operate normally during the litigation over control,” he said. “You don’t want to try to turn the ship until you know who the captain will be going forward.”

The appointment of new directors on June 16 gave National Amusements Inc., Redstone’s holding company, enough votes on Viacom’s board to revamp management, which he and his daughter blame for the company’s declining stock price. Dauman, whose working relationship with 93-year-old Redstone spans three decades, has been president and CEO of New York-based Viacom for almost 10 years.

This week Dauman was on the French Riviera at an advertising festival, and next month he’s scheduled to be in Sun Valley, Idaho, for the annual Allen & Co. media conference. He called the company “a great place to work” in a recent interview with Fortune magazine.

Suit, Countersuit

National Amusement officials sued in Delaware to get Bouchard to bless the board members’ ouster. Salerno, one of the company’s independent directors, countersued to block the move, arguing that Redstone’s deteriorating mental and physical condition left him unable to properly make such decisions. He requested that Redstone submit to medical examinations to determine whether he was lucid when he removed the directors.

Bouchard refused to fast-track the suits over control of Viacom, saying he wanted to wait for judges in Massachusetts and California to finish evaluations of Redstone’s mental capacity. "There are questions of human dignity to a very elderly person," he said during a June 22 hearing. "I’d be very cautious in that respect."

Redstone’s health is at the center of litigation in three states over his ability to make decisions about his $40 billion media empire. Dauman and another director, George Abrams, are suing Redstone over his decision to remove them from a trust that controls Viacom. A California judge is considering whether to hear a challenge to the idea that Redstone is capable of making his own medical decisions.

Company Spokesman

Viacom spokesman Jeremy Zweig said Monday the company had no comment on proposed operational order. Mike Lawrence, Redstone’s spokesman, and Nancy Sterling, a spokeswoman for the billionaire’s daughter, Shari Redstone, declined to comment.

The proposed order would bar Dauman from making any significant corporate move, including any unusual sales of Viacom shares or increasing the compensation packages of any top executives or employees, without notifying Redstone and his daughter, according to the court filing.

The CEO also can’t hire financial advisers or investment bankers who’ll rack up more than $10 million in fees without notifying Redstone, according to the proposed order. “The restrictions can be waived on a case-by-case basis by the written agreement of the parties to this action,” lawyers for both sides said.

The case is In re Viacom, CA 12472, Delaware Chancery Court (Wilmington).

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