Battle Over Viacom Board to Proceed -- WSJ
July 30 2016 - 3:02AM
Dow Jones News
Delaware judge to rule on Sumner Redstone's capacity to make
governance decisions
By Peg Brickley and Joe Flint
The mental capacity of 93-year-old mogul Sumner Redstone will be
scrutinized at trials in two states in October, drawing out the
high-stakes battle over governance of Viacom Inc. and the rest of
his media empire.
A Delaware judge is seeking to determine whether Mr. Redstone,
who controls Viacom through his holding company National Amusements
Inc., had the competency to make the decision to r eplace five
board members at the media company last month.
At a Friday hearing, Judge Andre Bouchard indicated he is taking
seriously arguments from Viacom's current board and management that
Mr. Redstone is being unduly influenced by his daughter Shari
Redstone, vice chair of Viacom and a member of National Amusements'
board. She has denied the assertion.
"What's at stake here, of course, is nothing less than the
governance of a multibillion-dollar company," Judge Bouchard said.
"My focus will be on whether a 93-year- old man who apparently is
in declining health had the capacity...to make the decisions that
are attributed to him."
A trial has been set for October, Judge Bouchard said, adding
that it will most likely be in the middle of the month and last
about two days.
Lawyers for Mr. Redstone have argued the decision to remove
Viacom Chairman and Chief Executive Philippe Dauman from the board,
along with four other directors, was the act of a person of sound
mind.
"You know what? I get that and if you prove that up, game over,"
Judge Bouchard said.
The decision to allow the board dispute to proceed comes a day
after a judge in Massachusetts also set an October trial date in a
related legal battle between Mr. Dauman and the Redstones. In that
case, Mr. Dauman and fellow Viacom board member George Abrams are
fighting their removal from the board of National Amusements and
the trust that will oversee Mr. Redstone's $40 billion media empire
of Viacom and CBS Corp. after he dies or is determined to lack
capacity.
Both cases heading to trial were viewed as wins by Viacom, which
has argued that Mr. Redstone's deteriorating health has left him
susceptible to manipulation by Ms. Redstone, with whom he's long
had a rocky relationship.
As was the case in Massachusetts, Judge Bouchard was dismissive
of National Amusements' arguments that Mr. Redstone's mental state
is irrelevant. Even if Mr. Redstone was found incompetent, his
lawyers argue there were enough votes at National Amusements to
make the changes to Viacom's board.
"There could be total exploitation of somebody who had no desire
to do this, and it would be totally unreviewable," Judge Bouchard
said. Earlier, after National Amusements' lawyer Donald Wolfe
pointed out that Delaware law allows shareholders to "vote
whimsically, fancifully," Judge Bouchard responded: "Not
incompetently."
A spokesman for National Amusements said the "ruling does not
constitute a judgment on the merits of the case," adding that
National Amusements "exercised its indisputable rights" as the
majority shareholder in changing Viacom's board.
A Viacom spokesman said, "We look forward to revealing the truth
as we prepare for trial in both Massachusetts and Delaware in
October."
Unlike Massachusetts, where Judge George Phelan didn't order an
immediate medical exam of Mr. Redstone and instead has asked for
his medical records dating back to the start of 2015, the Delaware
court hasn't ruled out such an exam.
Edward Micheletti, a lawyer for Frederic Salerno, Viacom's lead
independent director who brought the Delaware suit, said National
Amusements is desperate to keep the court from "learning the truth
about Mr. Redstone." If he was in fact a "vibrant person making
these sophisticated business decisions," access to him would be
granted, Mr. Micheletti said.
The uncertainty around Viacom's board and management is causing
disruption inside the company, Mr. Micheletti added, noting that
employees are leaving and the issue is stalling a potential sale of
a stake in the company's Paramount Pictures movie studio.
While the Delaware legal battle plays out, Viacom will operate
with its current board in place. The company has to give notice to
the court and the Redstone camp regarding any significant corporate
events, including acquisitions or sales.
Write to Peg Brickley at peg.brickley@wsj.com and Joe Flint at
joe.flint@wsj.com
(END) Dow Jones Newswires
July 30, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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