In a bold stroke, Sumner Redstone and his daughter said they were replacing five members of Viacom Inc.’s governing board, including Viacom Chairman and Chief Executive Philippe Dauman -- a move aimed at putting them in uncontested control of the beleaguered media company.
The new board members would include Buzzfeed Chairman Kenneth Lerer and former Sony Entertainment Inc. President Nicole Seligman, according to the Redstone family vehicle, National Amusements Inc., which holds controlling shares of Viacom.
“The newly elected directors have deep experience in corporate governance of public companies and will provide valuable expertise to Viacom in the areas of media, entertainment and technology,” National Amusements said in a statement.
Viacom’s nonvoting shares soared nearly 7% on the news, increasing $2.85 to $45.05.
The sharp uptick appeared to reflect Wall Street’s optimism that the boardroom civil war is coming to an end at Viacom, a media empire that includes Paramount Pictures and cable channels Comedy Central, Nickelodeon and MTV. For weeks, Dauman has been at odds with the Redstones over his plan to sell a 49% stake in struggling Paramount Pictures to outside investors.
The board moves, should they survive a legal challenge from existing board members, point toward an eventual replacement of Dauman as chief executive, analysts said.
“In the near-term, we think the next potential catalyst will be the announcement of a new CEO -- followed by some sort of restructuring plan,” Wells Fargo Securities analyst Marci Ryvicker said Thursday.
The moves will not take effect immediately. Instead, National Amusements’ attorneys filed court papers in Delaware, where Viacom is incorporated, asking a judge to affirm the changes. In the meantime, Dauman will continue to serve as chief executive and he and the four other board members will stay on at least temporarily.
Sumner Redstone’s 62-year-old daughter, Shari Redstone, has been an outspoken critic of Dauman and some members of Viacom’s board. She is vice chair of Viacom and owns 20% of the family firm, National Amusements, with her father owning the rest.
The Redstone family, according to National Amusements, has the power to unilaterally make changes to Viacom’s board because family members hold 79.8% of Viacom’s voting stock. They said the board of National Amusements has the authority to change the Viacom board at any time -- without having to call for a special election.
Viacom immediately challenged the Redstones’ authority to make wholesale changes to its board, saying current directors were elected in March by voting shareholders.
“This is a brazen and demonstrably invalid attempt by Ms. Redstone to gain control of Viacom and its management in disregard of Sumner Redstone’s wishes and to undermine the current board’s ability to represent the best interests of all of the stockholders of Viacom,” Viacom’s lead independent board member, Frederic Salerno, said in a statement.
He noted that Sumner Redstone for years said he wanted professional managers to oversee his $40-billion media empire, which includes Viacom Inc. and CBS Corp., rather than his daughter.
“Sadly, it is now clear that Mr. Redstone is being manipulated and used by his daughter in an attempt to accomplish her long-held goal of gaining complete control of Viacom,” Salerno said.
Viacom said it would fight the action in Delaware chancery court.
Both sides filed petitions in Delaware, asking for an expedited hearing. “Judicial relief is urgently required,” read Salerno’s lawsuit against the Redstones.
Salerno continued to press his contention that Shari Redstone “now seeks to become Mr. Redstone’s puppet master,” a charge that is forcefully rejected by Shari Redstone and representatives of her father.
“Now, when Mr. Redstone’s physical and mental conditions have dramatically declined and he is unable to fend for himself, Shari has moved into his home, taken over his life, isolated him from contact with others, and purports to speak for him,” Salerno’s lawsuit said.
In their lawsuit, Sumner and Shari Redstone asked for a Delaware judge to enter a “status quo order” that would allow the company’s operations to continue while handcuffing the board from making changes to corporate bylaws that would undermine Thursday’s action.
The Redstones also asked that Viacom directors be blocked from selling a piece of Paramount. They requested the judge affirm the newly named board members.
In addition to Lerer and Seligman, the newly elected Viacom directors are: Thomas May, chairman of Eversource Energy; Judith McHale, president and CEO of Cane Investments and a former Discovery Communications executive; and Ronald Nelson, executive chairman of rental car company Avis Budget Group.
Along with Dauman and Salerno, the other Viacom directors who were removed were: George S. Abrams, Blythe J. McGarvie and William Schwartz. Most have served for decades on the board and were handpicked by Sumner Redstone.
“It’s a dramatic change in corporate governance that the Redstone family is consolidating its grip on this publicly traded company,” said C. Kerry Fields, professor of finance and business economics at USC. “These are the actions of a privately held company and not a publicly held company.”
The ailing 93-year-old media mogul on Wednesday foreshadowed that big changes were afoot. Sumner Redstone’s representatives and Viacom have been squabbling over whether Viacom board members would be given access to him, as they wanted to check in on him as he hasn’t been heard from during recent Viacom board meetings, conducted by phone, or discussions about the proposed Paramount sale.
"I no longer trust Philippe or those who support him,” Sumner Redstone said in a statement released Wednesday and directed at Salerno. “I am determined to act in the best interests of the company and all of its shareholders. I do not trust you or the current board to do the same.”
Sumner Redstone’s representatives said the mogul would not make himself available to visit with Salerno nor Schwartz.
Viacom board members have claimed in legal filings that Sumner Redstone does not possess his full mental faculties.
Dauman, in an email to Viacom employees Thursday, claimed that “Shari Redstone is acting without proper authority and in opposition to Sumner Redstone’s long-held wishes.”
The embattled CEO told employees that board member Salerno was suing in Delaware court to block the board shake-up.
Sumner Redstone’s camp contends he has capacity to make legal decisions. And this week, he visited his grandson’s house in Los Angeles to watch a ballgame. On Tuesday, he stopped by CBS’ West Coast offices in Studio City and met briefly with CBS chief Leslie Moonves, who is widely expected to escape the carnage underway at Viacom because of CBS’ stronger performance.
A UCLA doctor who visited Sumner Redstone twice last month testified in court papers that Redstone – who struggles to speak coherently – wanted Dauman out because he has done “a bad job” running Viacom. The stock is down more than 40% since mid-2014.
Viacom’s chief operating officer, Thomas Dooley, was not removed from the board on Thursday, suggesting that he may step in as interim CEO should Dauman be forced out from the executive suite he has inhabited for nearly a decade.
Dooley’s contract, signed this year, contains a provision that he be offered the CEO position should Dauman leave the company. However, Dooley’s contract also stipulates that Dooley would be free to leave the company should the composition of the board change -- a process that began Thursday.
“Investors have lost confidence in Philippe Dauman and the board, as fundamentals and the company’s strategic positioning / outlook darkened,” BTIG Research media analyst Richard Greenfield wrote in a report. “Unsurprisingly, in the last few weeks investor sentiment surrounding Viacom has begun to improve modestly as the Sumner Redstone saga has investors hopeful that change to the board and management could happen.”
Shares have recovered more than 14% in recent weeks since the boardroom drama accelerated.
Sumner Redstone on May 20 removed Dauman and Abrams from the board of National Amusements, the Redstone family investment vehicle based in a Boston suburb. He also removed Dauman and Abrams from the Sumner Murray Redstone NAI Trust that will oversee his controlling stakes in Viacom and CBS after he dies or becomes incapacitated.
Abrams and Dauman sued in Massachusetts state court in late May to try to block their ouster from National Amusements. But now, the legal drama is expected to shift to Delaware.
“The simple truth here is that Sumner Redstone is the controlling shareholder of Viacom,” activist shareholder Eric Jackson, managing director of SpringOwl Asset Management, said Wednesday in anticipation that the move was coming.
“And Delaware law is clear: The controlling shareholder can make changes to management and the board of directors as he or she sees fit,” Jackson said.
Staff writer Tyler Hersko contributed to this report.
Times staff writer Tyler Hersko contributed to this report.
4:10 p.m.: This article was updated to add comments from Viacom’s lead independent board member, Frederic Salerno, and Wells Fargo Securities analyst Marci Ryvicker.
This article was originally published at 12:35 p.m.