DIVIDED LOYALTIES
Media titan Sumner Redstone’s reputation as a stickler for strong corporate governance at Viacom and CBS is coming under fire as his personal problems grow.
Media watchers and Wall Street analysts say that a number of key players in Redstone’s empire – himself and Viacom Chief Executive Philippe Dauman included – find themselves potentially conflicted between Redstone’s personal interests and the interests of Viacom shareholders.
Redstone and Dauman are on the boards of both Viacom and National Amusements, Redstone’s holding company for his stock in the two media giants.
Ditto Redstone’s daughter Shari, who also serves as president of NAI, and George Abrams, an outside director and Redstone cohort who serves on both boards.
In addition, Dauman was once Redstone’s personal lawyer and co-executor of his estate, and prior to the CBS split in 2006, was named in company bylaws as the heir to the chairman of Viacom in the event of Redstone’s death. (Bylaws now mandate that the chairman’s position is subject to a board vote.)
The first signs of possible conflict emerged with the debt problems facing National Amusements that forced the company last week to sell off $233 million of its stock in CBS and Viacom.
A source close to Viacom and CBS said that executives at both companies were in shock because Redstone never told them about his financial issues until minutes before National Amusements put out its press release announcing the stock sale.
Pali Capital media analyst Rich Greenfield wrote in a note to clients yesterday that “we are frustrated by the current debt troubles of National Amusements and the lack of disclosure by Viacom.”
Viacom didn’t return calls for comment.
Dauman has publicly said that Viacom and NAI are up-to-date on all their required filings related to the situation.
However, many Redstone watchers find it hard to believe no one noticed how close the company was coming to violating its debt covenants prior to the forced stock sale.
In an effort to avoid a conflict of interest, Redstone and Dauman have recused themselves from the refinancing talks between the banks and National Amusements.
NAI’s debt woes have caused some analysts to voice concern that Dauman, in particular, will find himself walking an even narrower tightrope if further economic troubles force tough questions about the fate of Viacom and whether to sell it.
Redstone has stated that he won’t have to sell more Viacom or CBS stock, but sources dismissed that as posturing. They noted that he wouldn’t have sold the initial tranche of shares at the lowest point in the market if his financial situation wasn’t “dire.”
Regardless of Redstone’s feelings about the idea of selling Viacom or Les Moonves-led CBS, particularly at a fire-sale price, sources said that despite his voting control, the decision is not Redstone’s.
The banks that extended the $1.6 billion in credit to National Amusements, $800 million of which comes due in December, hold all the cards. “The banks are the ones who will decide if they want to handle the situation internally or look for solutions outside of Sumner,” said one banking source.