Viacom CEO’s defiance is a red flag for buyers

June 10, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Viacom chief Philippe Dauman, proving he may be the world’s highest-paid indentured servant, is defying his boss. At an investor conference he said the U.S. media firm is moving ahead on selling 49 percent of its movie studio, Paramount Pictures, over the objections of controlling shareholder Sumner Redstone. Abrupt changes to Viacom’s bylaws directly related to the auction underscore how acrimonious the drama has become. The dispute is a red flag for any buyer considering wading into the morass.

The Viacom CEO was replaced last month as a trustee overseeing Redstone’s business interests when the 93-year-old chairman emeritus dies. Redstone cited the Paramount sale as one reason for the decision. Redstone bested rival media mogul Barry Diller in a $10 billion battle for Paramount two decades ago. Granted, the mental state of the ailing Redstone is unclear. A transcript from his court testimony in May suggested an ailing man, at turns fiery and grasping for responses.

Dauman, speaking to investors, acknowledged his long history with Redstone – he referred to him as his “great friend” – and the sensitivities involving the studio. (He’s been paid richly for his tenure of some 30 years, making $54 million in compensation last year.) Partnering, however, with a Hollywood-minded investor could boost distribution and, he argued, unlock a $4 billion windfall, worth some $10 a share, for the struggling operator of the MTV and Nickelodeon cable channels.

Shareholders might like some help with Paramount. It was ranked a dismal No. 6 last year in box-office sales. “Teenage Mutant Ninja Turtles: Out of the Shadows” is its latest flop. Redstone’s unusual move to change bylaws – the board must unanimously approve a partial or full sale of the studio – complicates things further. Until this family matter is resolved, only a foolhardy investor would dare scale the rock of Paramount.

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