Sumner Redstone and the battle for control of Viacom went to some interesting places last week.
Redstone and his daughter Shari Redstone reportedly visited Leslie Moonves, CEO of CBS, which Redstone controls along with Paramount Pictures. Redstone, who controls 80% of the voting stock in Viacom, has objected to CEO Philippe Dauman’s plan to sell a 49% stake in Paramount. And of course, there was plenty of time spent going to court.
After sending an email to Viacomsaying that he no longer trusts Dauman—a longtime friend and business associate he used to call “the wisest man he knows”—the Redstone family holding company, National Amusements, announced that it was replacing five of Viacom’s directors, including Dauman. Among the company’s new directors is former Discovery Communications president Judith McHale.
Redstone went to court in Delaware, where Viacom is incorporated, to have the replacement of the directors confirmed.
Viacom’s lead independent director, Fred Salerno, also went to court in Delaware to have the directors’ dismissal ruled invalid in part because, he alleges, while they were carried out under Sumner Redstone’s name, he is under the undue control of Shari Redstone, whom Redstone never wanted to run his companies, according to Salerno.
On Wall Street, investors and analysts ranked Viacom lowest among its media company peers because of weak revenuegrowth, underwhelming earnings and a poor outlook. The boardroom conflict actually lifted Viacom stock, which rose almost 7% on May 16 alone, the day Dauman was replaced as a director. Analysts also started to warm up to the idea of Viacom being put back together with CBS.
CBS and its shareholders might not be happy, but, as Michael Nathanson, analyst at MoffettNathanson Research, says, for Viacom the combination“ makes perfect sense.”
Nathanson says CBS provides distribution protection for Viacom’s networks, which carry little vital live programming and get a smaller share of carriage fees. CBS could also reprogram Viacom’s smaller networks into CBS-branded outlets. And two companies pay more than one in executive compensation, corporate overhead and other costs. Nathanson estimates a merger would produce $400 million in savings.
It would also provide Viacom with a strong leader steeped in show business in Moonves, whom Redstone refers to as a “super genius.”
Moonves has objected to CBS being merged into Viacom, but he might feel differently about CBS running Viacom’s assets.
Omar Sheikh, analyst at Credit Suisse, sees a combination with CBS as one possible outcome for a post-Dauman Viacom. Other options include halting the planned sale of a stake in Paramount, a restructuring of Viacom’s domestic cable networks, selling to a third party and continuing the current strategy.
Marci Ryvicker of Wells Fargo looked at the drama and took a wait-and-see approach.
“Anything that happens would take time…In the near-term, we think the next potential catalyst will be the announcement of a new CEO—followed by some sort of restructuring plan,” Ryvicker said. “Bottom line: We are fundamental analysts—our estimates aren’t changing, and we prefer to stay uninvolved in this challenged yet clearly dramatic stock.”