Viacom Truce Met With Skepticism

A day after Viacom Inc.’s board of directors ordered Chief Executive Sumner Redstone and second-in-command Mel Karmazin to reconcile their differences and work as a team, many company executives and money managers doubted the truce would hold.

One source close to the company predicted that “Sumner will bite his thumb off in frustration” if he has to watch from the sidelines as Karmazin continues to run the company’s daily operations.

“It might be resolved for the short term, but [the dispute] is going to rear its ugly head again,” said Richard Rubinstein, senior vice president at the Oppenheimer Funds, which owns Viacom shares.

He said Viacom’s stock would take a temporary hit if Karmazin steps down when his contract expires at the end of next year or if Redstone assumes more power, as the company’s bylaws allow him to do in May 2003.

Karmazin, formerly chief executive of CBS Corp., gained operating control of Viacom in May 2000, when the two companies merged.

Some analysts were disappointed that the board didn’t take a more dramatic step to signal support of Karmazin.

“There would have been a bigger sigh of relief if Mel’s contract was extended for two more years,” said Jessica Reif Cohen, an analyst at Merrill Lynch.

Redstone, 78, lost round one in his apparent battle to regain operating control of Viacom on Wednesday when the independent directors, after a discussion of the management conflict, instructed Karmazin to fulfill the remaining two years of his employment contract.

“This is a real test of Karmazin’s leadership abilities. The question is whether he has the self-discipline and can contain his own ambitions for the greater good of the company and his own career,” said Stephen Unger, a managing partner at Heidick & Struggles, an executive recruiting firm.

Many Wall Street money managers blame Redstone for provoking a fight with Karmazin and creating investor uncertainty by telling the media he would not designate Karmazin, 58, as his successor by naming him CEO next year.

“Sumner is like a lot of these media moguls,” said Scott Black, founder of Delphi Management Inc., a large Viacom shareholder.

“He thinks he’s going to live forever. You have the same problem at News Corp. and Disney, where these large personalities have a hard time sharing power.”

Although Karmazin is beloved on Wall Street, the clash of egos with Redstone has created rivalries within Viacom’s media empire, with executives at CBS and Paramount Pictures choosing sides.

Separately on Thursday, Viacom Entertainment Group Chairman Jonathan Dolgen was given the additional responsibility of Viacom’s huge Simon & Schuster publishing division, which formerly reported to Karmazin.

Jonathan Newcomb had been the publishing house’s CEO but is leaving to join private equity firm Leeds Weld & Co.