CBS CBS Corp

By Keach Hagey 

Months of simmering tensions over the future control of Sumner Redstone's $40 billion media empire erupted over the weekend into open warfare, as two of the mogul's longtime lieutenants were told they were removed as stewards of his holdings in Viacom Inc. and CBS Corp.

Late Friday, a lawyer claiming to represent Mr. Redstone, the 92-year-old controlling shareholder of the media companies, informed Viacom Chief Executive Philippe Dauman and Viacom director George Abrams that they had been dismissed from the seven-member trust that Mr. Redstone set up to manage his 80% voting stakes in the two companies when he dies or is incapacitated, as well as from the board of National Amusements Inc., the family holding company that owns the stakes.

In the ensuing hours, Mr. Dauman and Viacom both challenged the legitimacy of the move, questioning the lawyer's relationship to Mr. Redstone. They argued that Mr. Redstone lacks the mental capacity to have made the changes on his own and is being manipulated by his daughter, Shari Redstone, in her quest for control of National Amusements and Viacom.

"These steps are invalid and illegal," a spokesman for Mr. Dauman said in a statement late Friday. "They are a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone's name and signature. As she knows and as court proceedings and other facts have demonstrated, Sumner Redstone now lacks the capacity to have taken these steps. Sumner Redstone would never have summarily dismissed Philippe Dauman and George Abrams, his trusted friends and advisers for decades."

Mr. Abrams, in a statement, echoed Mr. Dauman's statement that the moves were uncharacteristic of Mr. Redstone.

"I have known and represented Sumner Redstone for over 50 years," Mr. Abrams said. "I worked closely with him on the building of his theater chain, the acquisitions of Viacom, Paramount and CBS, and countless business matters relating to all three of those entities, as well as National Amusements. I have also handled many personal matters for Sumner. Above all, he is my friend. The Sumner Redstone I knew would never have taken this action. What is going on now is unsettling and sad."

Shari Redstone responded via a statement from her spokeswoman on Saturday, saying only, "l fully support my father's decisions and respect his authority to make them."

Removing Mr. Dauman would be a big victory for Ms. Redstone, Mr. Redstone's daughter and the vice chairman of Viacom and CBS, who has clashed in the past with the executive and was the lone Viacom board member not to vote for his recent promotion to executive chairman.

Ms. Redstone, Mr. Dauman and Mr. Abrams were three of the seven members of the trust Mr. Redstone set up to take over his nearly 80% voting stakes in both Viacom and CBS when he dies or is incapacitated. Other members include Ms. Redstone's son and her mother's divorce attorney.

Michael Tu, an attorney at the Los Angeles law firm Orrick, Herrington & Sutcliffe that claims to represent Mr. Redstone in the action, said in a statement Saturday morning that concerns over Mr. Dauman's leadership of Viacom had contributed to Mr. Redstone's decision. Viacom's stock is down 40% over the past year.

"Sumner Redstone took decisive and lawful action [on Friday] which he firmly believes is in the best interest of Viacom Inc. and its stockholders," Mr. Tu said. "Mr. Redstone acted after he expressed his concerns regarding Viacom's performance to Messrs. Abrams and Dauman, both Viacom directors, and received no response from them."

The maneuvering creates a more uncertain future for control of Viacom, home to well-known brands such as MTV, Nickelodeon and VH1. Once triggered, the trust will have control of a majority voting stake in Viacom, empowering those trustees to determine board members, approve or reject mergers and acquisitions and have veto capability over major decisions that go to a shareholder vote.

The power play also raises questions about the security of Mr. Dauman's job as chief executive of Viacom, given that concerns about the media company's performance were cited as justifications for the changes to the trust.

Meanwhile, Mr. Dauman's new claims about Mr. Redstone's lack of capacity once again brings up the discussion of whether Mr. Redstone's associates will feel pressured to have the media mogul's capacity evaluated to determine if the time has come to trigger the trust to take over business decisions for him. Until the latest changes, Mr. Dauman and Mr. Abrams were two of the five people charged with that responsibility.

The stunning events of this weekend come after months of corporate and legal drama stirred up by the declining health of Mr. Redstone.

Earlier this month a California judge dismissed a lawsuit challenging his mental competency filed by his former companion, Manuela Herzer, who said he lacked mental capacity when he evicted her from his mansion and removed her as his health-care agent last October.

During the legal battle Ms. Herzer characterized Mr. Redstone as a "living ghost" while Mr. Dauman had said in an affidavit that he had been "engaged and attentive" during meetings last fall.

Mr. Redstone's profanity-laced deposition in the case was enough to convince the judge that the ailing media mogul didn't want Ms. Herzer back in charge of his health care. But the transcript revealed his extreme difficulty communicating and his inability to answer some basic biographical questions, deepening concerns within the Viacom board about his role in the company, according to people familiar with the matter. In February, just days after a geriatric psychiatrist hired by Ms. Herzer examined Mr. Redstone, he stepped down as executive chairman of both Viacom and CBS, replaced by Mr. Dauman and CBS Chief Executive Leslie Moonves in that role. Earlier this week, Viacom's board voted to stop paying Mr. Redstone altogether.

Anger over not being given advanced warning about his pay cut was one of several factors that prompted his latest move, according to people familiar with the matter.

But Frederic Salerno, the lead independent director of Viacom, said the lack of communication went both ways, and contributed to the board's decision to eliminate his pay.

"We took this action based on his complete lack of communication with the Viacom board and management team and his silence during recent board meetings, as well as recent public disclosures raising concerns about his health," Mr. Salerno said in a statement. "In addition, despite numerous requests, I, along with the Chair of Viacom's Governance and Nominating Committee, have been denied access to Sumner for a face-to-face meeting."

Just who is responsible for the board members' inability to meet with Mr. Redstone is a matter of some dispute. A Viacom spokesman alleged that Ms. Redstone was responsible, acting as a gatekeeper for her father.

"It is clear that Shari Redstone has isolated her father and put his residence on lockdown, which provides clear evidence of her exercise of undue influence," a Viacom spokesman said in a statement. "Despite many attempts by members of Viacom's board, including the lead independent director, to meet with Sumner they have been denied access."

But other people familiar with the matter say it is Mr. Redstone's lawyers, not Ms. Redstone, who have been responsible for Mr. Redstone not meeting with Viacom board members.

Before the lawsuit with Ms. Herzer was tried, lawyers representing Mr. Redstone counseled against any such meetings until after the trial was over, according to people familiar with the matter.

After the trial was over, however, Mr. Redstone was frustrated that he wasn't being heard by the board and management of Viacom on a variety of concerns, including his disapproval of Mr. Dauman's plan to sell off a minority stake of Paramount Pictures and annoyance at being demoted from executive chairman of Viacom without warning, according to people familiar with the matter. Rob Klieger, an attorney at Hueston Hennigan who had represented Mr. Redstone in the lawsuit against Ms. Herzer, said he recommended that Mr. Redstone engage his own corporate counsel, and helped facilitate his hiring of Orrick, Herrington & Sutcliffe.

When Viacom board members attempted to contact Mr. Redstone after the trial, they were told by lawyers to wait until after the corporate counsel was in place.

Early last week, Mr. Salerno, Mr. Dauman and Mr. Abrams heard from that counsel for the first time, in a letter stating that Mr. Redstone was concerned that selling the Paramount stake might not be in the best interest of Viacom and expressing a desire for a detailed briefing of management's plans to improve Viacom's business performance.

A Viacom spokesman challenged Mr. Tu's statement that the board members didn't respond to the concerns Mr. Redstone raised, noting that Mr. Redstone was on the phone during an "in-depth strategy session of Viacom's Board Tuesday evening and all day Wednesday" and "not a sound was heard from Sumner, who was connected by phone. Shari Redstone, also connected by phone, didn't raise a single concern during the Board session on any topic."

The Viacom spokesman further challenged Mr. Tu's legitimacy in representing Mr. Redstone, saying he was "previously unknown until this week to anyone associated with Sumner other than Shari Redstone" and that he had been unable to confirm with the board's independent counsel that he had even met with Mr. Redstone.

In Mr. Dauman's calling the moves "invalid and illegal" and a Viacom spokesman saying they were proof of Ms. Redstone's "undue influence" over her father, the responses laid the groundwork for what people familiar with the matter expect will be another legal battle over Mr. Redstone's mental competency, just weeks after another one filed by his former companion was tossed out of court.

If Mr. Dauman does challenge Mr. Redstone's competency, he will have to argue that the decline of that mental state was precipitous and recent. Last fall, in an affidavit in the case against Ms. Herzer, he said that Mr. Redstone had been "engaged and attentive" during recent meetings. That was in contrast to Ms. Herzer's description of him at the time as a living ghost.

Mr. Tu alluded to this difficulty in his statement, calling Mr. Dauman's statement "attacking Mr. Redstone's capacity disappointing and incorrect, as reflected by Mr. Dauman's own testimony under oath less than six months ago that Mr. Redstone is 'engaged, attentive and as opinionated as ever.' "

It is unclear how the change to the trust and National Amusements will affect Mr. Dauman's and Mr. Abrams's roles at Viacom. One person familiar with the matter suggested that Mr. Redstone was being cautious about sudden changes to the management structure of Viacom that might hurt its stock price, while another person familiar with his thinking said he was getting his "ducks in a row."

He will be 93 on May 27.

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

(END) Dow Jones Newswires

May 21, 2016 21:02 ET (01:02 GMT)

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