CBS CBS Corp

By Keach Hagey 

In the battle between media mogul Sumner Redstone's daughter and his longtime confidant, the latter has prevailed.

Viacom Inc. said Thursday Mr. Redstone will resign as executive chairman of the media company and be succeeded by Chief Executive Philippe Dauman, who has been one the 92-year-old Mr. Redstone's most trusted advisers for three decades.

Mr. Dauman was elected to the post at a Viacom board meeting. The lone dissenter, according to people familiar with the matter, was Mr. Redstone's daughter, Shari Redstone, who has had a tense relationship with Mr. Dauman over the years, and was once viewed as a potential successor to her father.

The changing of the guard at Viacom follows Wednesday's announcement that Mr. Redstone would step down as executive chairman of CBS Corp., and that CEO Leslie Moonves would take on that title.

Relinquishing the chairmanship at two companies he built in a decades-long expansion across TV, film and radio is a significant move for Mr. Redstone. But he is still overwhelmingly in control of them, with roughly 80% voting stakes in both CBS and Viacom. When he dies, or if he is deemed incapacitated, his interests would pass on to a trust to be overseen by seven trustees, including Ms. Redstone and her son, Mr. Dauman and four lawyers with ties to Mr. Redstone and his ex-wife, Ms. Redstone's mother.

Speculation about Mr. Redstone's health has intensified in recent months. He hasn't spoken on earnings calls, and is rarely seen in public. He faces a lawsuit from a former companion, Manuela Herzer, who alleges he wasn't of sound mental capacity when he removed her as his health-care agent last October.

Lawyers for Mr. Redstone say the suit is without merit, and have filed a motion to dismiss it.

Last Friday, as part of discovery in the suit, he was examined by a geriatric psychiatrist acting as a medical expert for Ms. Herzer. The sealed results will be presented to the judge in the case this month.

Mr. Dauman's elevation to the chairman's post at Viacom wasn't a foregone conclusion. The company, owner of cable networks like MTV and Comedy Central and the Paramount film studio, has faced strong headwinds in its cable business and suffered a one-third drop in its stock price over the past year. Some investors had expressed displeasure with Mr. Dauman's leadership and have been pushing for change.

Viacom shares opened up around 5% at $47 on Thursday, as investors anticipated dramatic change at the company, but lost some ground after Mr. Dauman's election to chairman was announced. The shares were flat in early afternoon trading. CBS shares were up 1%.

Marci Ryvicker, an analyst at Wells Fargo, wrote on Thursday that Mr. Dauman's "elevation to executive chairman likely means there will not be a change in control," adding that "this is the most likely cause of the stock's pullback."

"We are disappointed with the company's decision to appoint Philippe Dauman as executive chairman," said Eric Jackson, an activist investor at SpringOwl Asset Management, who has argued in the past for the company to replace Mr. Dauman as CEO. "It raises questions about the board, corporate governance and fiduciary duties." he added.

Mr. Jackson, who owns less than 5% of Viacom, pressed publicly for an independent director to be named as Viacom's next executive chairman. None of the company's independent directors have any direct media experience, except Deborah Norville, the host of CBS's "Inside Edition," who has faced criticism for her lack of independence because of her ties to CBS.

Viacom's board reviewed the issue, and said in a recent proxy statement that she was independent enough to qualify as an independent director.

Other investors expressed frustration that Mr. Dauman's election as chairman wound ensure he remained Viacom's CEO, despite the stock's dismal performance.

Under Mr. Dauman's contract he can terminate his employment for "good reason" if Viacom were to "change the parties to whom he reports" or remove him from the board. His exit package could be worth as much as $75 million, according to a securities filing.

The board, however, stood behind Mr. Dauman. "In choosing a successor to Sumner, the board considered the need for seasoned leadership in this time of unprecedented change, Philippe's business experience and unparalleled knowledge of Viacom, and his long-term vision for the company," said Viacom director William Schwartz. "We believe his becoming executive chairman is in the best interests of the company and all shareholders."

Being tapped as chairman is a major victory for Mr. Dauman at a difficult moment for the executive. He has come under intense pressure from Wall Street, as Viacom's channels have been among the hardest hit by the rise of digital video and defection of young viewers from traditional television.

Mr. Dauman also has been embroiled in the lawsuit brought by Ms. Herzer, who he replaced as Mr. Redstone's health-care agent. Ms. Herzer has described Mr. Redstone as a "living ghost" barely able to follow the thread of conversation, but Mr. Dauman said in an affidavit that the nonagenarian mogul was "engaged and attentive" during a recent visit.

Mr. Dauman has hired a separate legal team to try to quash a subpoena for him to be deposed in the case..

Mr. Dauman, a lawyer by training, has served on Viacom's board since 1987. His close relationship with Mr. Redstone--he is mentioned in the second sentence of Mr. Redstone's memoir as "my close friend Philippe Dauman"-- was forged amid epic corporate battles, including Mr. Redstone's hostile takeover of Viacom and Viacom's takeovers of Paramount Pictures and Blockbuster Entertainment.

After leaving the company for a few years to work in private equity, Mr. Dauman returned as CEO in 2006. To tackle the challenges facing the company, he has taken steps that include shifting the company away from its advertising model away from its dependence on traditional Nielsen TV ratings by investing in a data-driven ad department; expanding overseas with investments like the purchase of the UK's Channel 5; pushing deeper into digital distribution by building out a mobile studio to feed demand from smartphone-addicted millennials; and increasing the number of films that Paramount releases.

"Philippe has been instrumental with Sumner in every aspect of Viacom's success for nearly 30 years, and most recently as CEO has taken on the tough task of navigating our future in a time of unprecedented innovation and disruption. He has laid out a strategic long-term vision for the company that we fully endorse," Mr. Schwartz, the Viacom director, said in a statement.

Ms. Redstone, who is vice chairman of Viacom, had signaled her opposition to Mr. Dauman's appointment in a statement Wednesday, saying she didn't believe that her father's successor at Viacom could be a "trustee of my father's trust, or otherwise entwined in Redstone family matters, but rather a leader with an independent voice."

As was the case with the CBS leadership change, Ms. Redstone was offered the post of nonexecutive chairman at Viacom, but declined, according to people familiar with the matter.

"Shari is going to continue to advocate for what she believes to be in the best interests of Viacom shareholders," said a spokeswoman for her.

Write to Keach Hagey at keach.hagey@wsj.com

(END) Dow Jones Newswires

February 04, 2016 16:37 ET (21:37 GMT)

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