Viacom Saga Settled (for Now) as Shari Redstone Takes Control

The top leadership at Viacom (NASDAQ: VIA) (VIAB) has been fighting for control of the company in a public battle worthy of an HBO drama.

While the health and mental state of Sumner Redstone remains uncertain, it is very clear that his daughter Shari will be pulling the strings going forward. Motley Fool analysts Vincent Shen and Daniel Kline revisit this story to look at what they got right in this episode of Industry Focus: Consumer Goods.

Kline may have accurately predicted that Shari would eventually push out Dauman, but that is only one part of the story.

A full transcript follows the video.

This podcast was recorded on Aug. 23, 2016.

Vincent Shen: I wanted to start our conversation by playing a short clip of you, actually. This clip was taken from the May 31 episode of IF, when Dan and I covered the controversy and some of the intrigue surrounding the entertainment giant, Viacom, its management team, board of directors, and the Redstone family, primarily, which holds a majority control of the company. For listeners who missed that episode, definitely check it out if you want to get an example of an ongoing case study in corporate politics and power grabs. That's the best way I can describe it. Basically, Sumner Redstone, now 93 years old, he led Viacom for many years, but recently his health has declined, and it's resulted in his previously estranged daughter, Shari, calling the shots, publicly, at least, as she essentially wrangled control of the company from CEO Philippe Dauman. So, here's Dan making his prediction, at the time, of what would ultimately happen at Viacom.

[Clip from May 31, 2016]

So, Dan, three months later, the dust seems to have settled. How close was your prediction?

Dan Kline: Well, it's dead-on, but I wish I could claim to be some kind of prognosticator or seer. But the reality was, Shari Redstone is going to control her father's stake. And whether Sumner has died or isn't with us anymore in terms of his mental capacity, it was an inevitability. So, I predicted something that pretty much had to happen. Shari Redstone does not want Philippe Dauman in charge of Viacom. So, eventually, he was not going to be in charge of Viacom. I'm surprised that it happened this quickly, but I'm not surprised at all that it happened.

Shen: So, Philippe is out. For a little bit more background for listeners who may not be as familiar with the story. Was there any particular catalyst or driver that you felt led to the falling out between Shari and Philippe? Because Philippe was previously Sumner's protege, very close to the family, I feel.

Kline: Sure. There's two things. There's the general stock performance. Viacom has not done well. I don't remember the exact numbers, but it's down significantly over the past few years. And second, he wanted to sell a stake in Paramount, which even Sumner Redstone, who had been his biggest supporter, was pretty widely known to not be in favor of. So, it was really a case of, if you have the results, if Dauman had been killing it, if all the movies had been hits and everything had been going great, well then there's not much Shari Redstone can say, even if her and her dad actually wanted to wrest control away.

But the reality is, when it's not performing well, and he's trying to do something, basically, as the majority owner, they control the majority of the stock through National Amusements. If he's trying to do something you don't want done, you have every right to step in and stop it. And that's what she did. It just gets all the more palace intrigue, because we don't know if her father is aware of what's going on or, really, if he's aware of anything at this point.

Shen: Yeah. Like I mentioned, he's 93 years old, his health has been declining. And he hasn't made a public appearance in at least a year, and basically all these statements that come out are essentially interpreted through Shari. So, there's definitely a bit of room there for her to control what goes out to the public and what's going on behind the scenes, as well.

Kline: The smart thing, though, is Shari Redstone played this well. Instead of putting her own person in, or naming herself CEO, she put Tom Dooley. He was the COO beforehand, and he's someone who has risen his way through the ranks. He's very popular with the rank and file. So, you're ousting Dauman, but you're sort of putting everybody's favorite uncle in the seat. And while Dooley only has the job until September, it's possible, if he shows he can follow directions while also leading the company, that he could keep the job for a longer period of time.

Shen: Jumping back to something you'd mention that was a major point of concern for the Redstone family with Dauman's performance. You said the stock is down. It's actually largely been flat since the last time we talked about it in May. But, obviously, in the previous two years, it's been down well over 40%. I think the share price was previously closer to $90, now it's around $46 per share. Do you think now that this whole episode is resolved, I think the agreement they came to ended all lawsuits among the various parties involved in this?

Kline: Well, it ended the lawsuits between Dauman, the board, Shari, Sumner. But, actually, one of the other grandchildren, Keryn Redstone, who's Shari's niece, has also filed a lawsuit saying she's a benefactor of the trust, and she was not in any way consulted on this move. So, I think this is one of those situations that, until maybe 18 months, a year, maybe a little less after Sumner Redstone dies, there's going to be lawsuits flying everywhere, because there's a lot of money involved. It's a very complicated set up with National Amusements controlling not just Viacom but also CBS, and all sorts of different ownership stakes, as well as different people who are benefactors that don't necessarily get a vote but do make some money from this. The principal legislation is over in terms of the ability to run Viacom and where it's going to go in the future, but I would expect lawsuits to keep flying in this case.