CBS CBS Corp

By Keach Hagey And Amol Sharma 

Boardroom drama is intensifying at Viacom Inc. amid questions about the health of Executive Chairman Sumner Redstone, as Wall Street ponders what the struggling media giant might look like without him.

The 92-year-old Mr. Redstone has overwhelming control of Viacom, with a roughly 80% voting stake. The company has said little on the subject of his health.

Mr. Redstone's daughter, Shari Redstone, and Viacom Chief Executive Philippe Dauman, who at times have been at odds, each have claims to a major role in Viacom after Mr. Redstone's death.

In an emailed statement Tuesday, Mr. Redstone said he set up a trust decades ago to ensure that his controlling interest in Viacom and CBS Corp. would be "professionally managed for the benefit of all shareholders" once he is gone.

Several ministrokes have left Mr. Redstone with very restricted lower jaw movement, making it hard for him to talk, said a person familiar with his health. He can speak a few sentences at a time, and then pauses to swallow, so he can be understood, the person said.

Mr. Redstone has been silent this year on the company's earnings calls, which he has traditionally kicked off by calling Mr. Dauman the "wisest man I have ever known."

And he didn't attend the annual meetings of Viacom or CBS, which he also controls. Ms. Redstone is vice chairman of both companies.

Investor attention has focused mainly on Viacom, since it has underperformed compared with CBS.

People close to him say that Mr. Redstone remains mentally sharp enough to guide Viacom, owner of cable networks like Nickelodeon and MTV, as the $18 billion company goes through one of its toughest stretches ever. Viacom has lost $12.2 billion in market value this year on concerns about sinking TV ratings and the future of pay television.

Mr. Redstone, who lives in California, still dials into board meetings, communicates directly with top management, and enjoys watching financial news and sports on TV, the people say.

He has taken and passed several mental competency tests, say people familiar with the matter, including one as recently as a month ago, when he rewrote his will following the end of his relationship with his 44-year-old girlfriend, Sydney Holland.

"In September, Sumner was examined by an independent physician, who confirmed that he has the capacity to execute estate-planning documents, " said Leah Bishop, Mr. Redstone's California estate-planning attorney. "The examination was conducted to safeguard against meritless challenges."

Some investors have begun to discuss within their own firms what kind of responsibility Viacom's board has to disclose the state of Mr. Redstone's health, said people familiar with the matter.

"There are significant questions pertaining to management, in light of business succession," said Michael Cuggino, CEO of Pacific Heights Asset Management, a Viacom shareholder. He said he has been disappointed by Viacom's performance lately, but "the underlying value of their various assets is very attractive in the long term."

Some investors say they think the stock would rise if Mr. Dauman were replaced. They are upset because he has failed to make any significant digital investments or develop enough new hit shows, and because Viacom's current share price is below what the company paid when it spent billions on stock buybacks during his tenure.

In his emailed statement, Mr. Redstone said Mr. Dauman has his continued support and trust.

"He is out in front navigating an unprecedented level of change in the industry and he has articulated...a smart, innovative and sustainable path to success," Mr. Redstone said. "I am more confident than ever that he is on the right track," he added.

Mr. Redstone's statement didn't address questions about his health.

Among those frustrated by Viacom's direction and governance is New England Patriots owner Robert Kraft, who left Viacom's board in August after nine years, people familiar with his thinking say.

Viacom says Wall Street's concerns are overblown, pointing to the stock's recovery since its low point in August, success striking long-term carriage agreements with pay TV distributors, and ratings improvements in recent weeks at major channels like Nickelodeon. like Nickelodeon

Mr. Redstone controls Viacom and CBS through National Amusements Inc. Those interests will pass to his grandchildren and their descendants upon his death or if he is deemed incapacitated, according to a statement in May from Mr. Redstone.

A seven-person trust will manage the holdings by majority vote.

The trust will include Ms. Redstone; her son Tyler Korff; Mr. Dauman; David Andelman, a CBS board member; George Abrams and Norman Jacobs, lawyers who have worked for Mr. Redstone and his family; and Leonard Lewin, an attorney for Phyllis Redstone, Ms. Redstone's mother.

Mr. Redstone hasn't positioned Ms. Redstone to be his clear successor. She owns 20% of National Amusements, but is just one of several stakeholders in the trust.

Ms. Redstone has been frustrated with Viacom's recent direction, people familiar with the situation say. Documents relating to Mr. Redstone's divorce in 2002 grant that Ms. Redstone will become chairman of Viacom when Mr. Redstone dies or is incapacitated, according to people familiar with the matter.

Making matters more complicated: Mr. Dauman has a clause in his contract that would allow him to walk away from his post if he isn't made chairman upon Mr. Redstone's death or incapacitation, people familiar with the matter said. CBS CEO Leslie Moonves's contract has a similar provision.

The arrangements put Ms. Redstone and Mr. Dauman, who haven't always seen eye to eye, in potential conflict, the people said.

Ms. Redstone sees a path to winning effective control of the trust, and thereby the company, according to people familiar with the matter.

In his emailed statement about the professionally managed trust, Mr. Redstone said, "Recent speculation about personal agendas has only confirmed for me the wisdom of my decision."

Mr. Dauman, via a spokesman, declined to comment.

People who have known Mr. Redstone say he has been uncharacteristically patient with Mr. Dauman, given his past reactions when Viacom's stock has fallen. He famously fired then-Chief Executive Tom Freston after just nine months, saying the company's board was dissatisfied with the stock price and wanted him to be more aggressive in pursuing acquisitions.

Joann S. Lublin and Joe Flint contributed to this article.

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(END) Dow Jones Newswires

October 06, 2015 21:10 ET (01:10 GMT)

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