NEW YORK/SAN FRANCISCO (Reuters) - Sumner Redstone removed five of Viacom Inc’s (VIAB.O) directors, including Chief Executive Philippe Dauman, from the board of the media company he controls on Thursday, a big step toward a potential management shake-up of the almost $20 billion company.
Dauman remains CEO for now and he and the other four will stay on the board until a Delaware court affirms the changes, but the move could be a prelude to the 93-year-old media mogul forcing Dauman out of the company entirely.
Viacom’s independent lead director Fred Salerno, one of the board members Redstone removed, shot back with his own lawsuit on Thursday in the same Delaware court to block the move, calling it “invalid” and the result of Redstone’s daughter Shari Redstone manipulating her father.
The latest developments ratchet up the wrangling for control over Redstone’s $40 billion empire, amid questions over whether the magnate is making his own decisions or is even of sound enough mind to do so.
Salerno’s lawsuit asserts that Redstone’s daughter, Shari Redstone, is behind the latest move. “Shari now seeks to become Mr. Redstone’s puppet master, pulling his strings behind the scenes to improperly seize control of Viacom,” it states.
The lawsuit also alleges that Shari Redstone told Salerno in a phone call of her plan to remove members of the Viacom board that she thought did not support her, but would be willing to keep Salerno in place if he supported her.
Salerno, according to the lawsuit, “promptly informed Viacom’s Governance and Nominating Committee about Shari’s threat.” Shari Redstone declined to comment.
Redstone’s privately held movie holding company, National Amusements Inc, owns 80 percent of voting shares of Viacom as well as of CBS, and some investors said they hope a board shakeup could point to an eventual a merger between the two media companies.
Viacom’s shares jumped after Reuters first reported Redstone’s move, ending the session up 6.7 percent. Shares of CBS Corp (CBS.N) closed up 2.4 percent. Viacom owns Nickelodeon, Comedy Central and other networks as well as movie studio Paramount.
Some investors said on Thursday they did not expect Dauman to remain as CEO for much longer.
“You would have to think if Dauman isn’t trusted to be on the board, he isn’t trusted to be CEO,” said Salvatore Muoio, a principal at New York-based S. Muoio & Co, a major owner of Viacom voting shares. “Maybe a new board with different skill sets and different perspectives will really change the direction of the company.”
A Viacom spokesman declined to comment.
National Amusements asked the Delaware Court of Chancery to rule that the board changes are legal.
Viacom’s corporate charter gives National Amusements the power to remove Viacom’s board at any time under Delaware law, which suggests the ousted directors have an uphill battle to block the move, legal experts said.
National Amusements said on Thursday it removed Dauman, George Abrams, William Schwartz, Blythe McGarvie and lead independent director Salerno.
It replaced the directors with Kenneth Lerer, a venture capitalist and co-founder of the Huffington Post and chairman of BuzzFeed; Nicole Seligman, a former Sony Corp executive; Judith McHale, the former head of Discovery Communications, who was general counsel for MTV Networks; Thomas May, the chairman of Eversource Energy utility company; and Ron Nelson, chairman and CEO of Avis Budget Group, who used to work at DreamWorks and Paramount.
Redstone said on May 27 that he was considering removing Dauman and the board, citing dissatisfaction with the struggling company’s strategy that includes a sale of a minority stake in Paramount Pictures. The company has been working to reverse declines in TV ratings at many of its networks.
At that time, Viacom’s independent directors characterized such a move as “legally flawed” and said they would contest their ouster.
Salerno went further on Thursday, saying the attempt to remove the directors was “a brazen and demonstrably invalid attempt” by Shari Redstone “to gain control of Viacom and its management in disregard of Sumner Redstone’s wishes.”
National Amusements also filed papers in Delaware asking the court to prohibit the Viacom board from “taking any action outside of the ordinary course of business,” including its planned minority stake sale of Paramount.
Viacom’s six other board members, including Chief Operating Officer Thomas Dooley, remain on the board. That surprised some investors as Dooley, who has worked with Dauman for more than 30 years, is widely seen as his right-hand man.
A key question hanging over the Viacom saga is whether the elderly billionaire, who has trouble speaking and has limited mobility, is calling the shots or being manipulated by family members who want to wrest control of Viacom from Dauman.
Redstone has already exercised his controlling interest to remove Dauman and Abrams from his family trust and the board of National Amusements. National Amusements has changed Viacom’s bylaws to require unanimous approval of any sale related to Paramount.
Dauman has contested his ouster from the trust and the board of National Amusements in a Massachusetts lawsuit. He contends that Shari Redstone is manipulating her father, who is not mentally competent, according to court documents. Shari Redstone has called those claims absurd.
Over the past few weeks, Salerno has requested a face-to-face meeting with Redstone and warned of further court battles if the media tycoon remains inaccessible to the board.
On Wednesday, Redstone responded through a spokesman that he “no longer trusts” Dauman to act in the company’s best interests.
National Amusements’ decision to keep the current board in place until the Delaware court rules could pay off because it presents the court with a less volatile situation, said Lawrence Hamermesh, a professor at Widener University School of Law in Delaware.
“I think this was the more conservative course and honestly I’d be surprised if a judge didn’t do that (approve the changes),” he said.
Reporting by Jessica Toonkel in New York and Dan Levine in San Francisco; Additional reporting by Anna Driver; Editing by Eric Effron and Bill Rigby