Wall Street analysts following Viacom say the next step in the saga of Sumner Redstone could be either Redstone trying to remove Philippe Dauman as CEO or Dauman and the current board of Viacom suing Redstone.
On Sunday, Redstone issued a statement calling Dauman’s statements about his mental capacity “misleading” and demanding a plan for improving struggling Viacom’s business outlook and an explanation of why Dauman wants to sell a stake in Paramount. Redstone prefers keeping Paramount wholly owned by Viacom.
On Friday, Redstone removed Dauman and another Viacom director, George Abrams, as trustees for the SMR Trust, which will control Redstone’s 80% stakes in Viacom and CBS after he’s dead or incapacitated. The moves strengthened the hand of Shari Redstone, the 92-year-old media mogul’s daughter.
“If it is true that the controlling shareholder is unhappy with Viacom's performance, this suggests Redstone could at some point seek to use his 80% voting interest to remove Dauman from the CEO role, as he has done with former CEOs in the past,” noted Omar Sheikh of Credit Suisse. “It is clear from public statements from the Viacom board that they fully support Dauman, but it is hard to see how they could prevent his removal if that is, in the future, Redstone's wish.”
Sheikh adds that a legal challenge to Redstone’s actions is possible.
“We note that a spokesman for Dauman called Redstone's action to remove him and George Abrams 'invalid and illegal.' This suggests to us that a legal challenge to their removal is possible,” Sheikh said in a research note Sunday. “We would argue that the outcome of such a challenge would likely need to be seen before the boards of Viacom or CBS can decide on the appropriate course of action for both companies.”
Similarly, Rich Greenfield of BTIG Research on Sunday said he expects the next step to be a lawsuit between Dauman and Abrams and the SMR Trust and National Amusements, the Redstone family holding company.
While Redstone recently won a lawsuit that challenged his competency to make health care decisions, Greenfield questions how important that precedent will be in any upcoming legal challenge, particularly if it is brought in a state other than California.
“Sumner Redstone’s statement from [Sunday] makes one wonder if this is going to escalate even further in the next few days, meaning will Sumner shortly terminate most of the current Viacom Board of Directors, including Philippe Dauman and remove Dauman as CEO?” Greenfield asked.
“From a stock perspective, investors who were hoping for a sale of Paramount to boost Viacom’s sagging stock price will most likely have to wait until there is greater clarity around who is actually running Viacom day-to-day,” Greenfield said. “ If Sumner Redstone is unhappy and has capacity, it is hard to see how Philippe Dauman and his management teams survive the wrath of Redstone.”
Greenfield noted that with Dauman out of the picture, Redstone could choose to re-combine Viacom and CBS. CBS shareholders might not prefer that, but they might not get a vote.
It is unlikely that Redstone would want to sell Viacom, given that he does not want even a piece of Paramount sold now, he added.
But if somehow Dauman manages to have Redstone’s moves declared illegal or Redstone himself judged incompetent, “the future for Viacom and CBS are even less certain, not to mention the fate of CBS’ Les Moonves,” Greenfield said. “If Dauman retakes control of the SMR trust, we believe it is logical to believe he would try to oust [CBS CEO] Moonves,” who is seen as an ally of Shari Redstone, Dauman’s challenger for control of the Redstone assets.