About 22 years ago, media mogul Sumner M. Redstone beat out Barry Diller in a fierce bidding war for Paramount Pictures, striking a deal worth nearly $10 billion for the film and television studio. Redstone famously celebrated the prize with the toast: “Here’s to us who won.”
Paramount is now back at the centre of a brutal fight: The fate of the studio has emerged as one of the central factors in the battle for control of Redstone’s $40 billion entertainment empire.
Paramount is owned by Redstone’s big entertainment company, Viacom, which said in February that it was looking to sell a minority stake in the studio. Through representatives, Redstone has said he is vehemently opposed to the sale. Yet the sales process continues on track, and Viacom executives are sticking by their forecasts of reaching an agreement by the end of June.
A Paramount deal — against Redstone’s stated wishes — could set off a reaction leading to a major shake-up of Viacom’s board and, subsequently, the removal of Philippe P. Dauman, its chief executive. Redstone has that power through his control of about 80 per cent of the voting shares in Viacom and CBS held by National Amusements, the private theatre chain company started by his father.
Redstone has already considered the next steps he should take as Viacom’s controlling shareholder and a company director, according to a letter dated May 16 and sent via email to Viacom directors by a lawyer for Redstone, Michael C. Tu, a partner in securities litigation at Orrick, Herrington & Sutcliffe.
In the letter, Tu wrote: “We request that before any further steps are taken concerning Paramount, that his legal and financial advisers receive a comprehensive briefing about the process to date.”
Redstone also requested a detailed briefing on management’s turnaround strategy for Viacom.
The communication underscores what his representatives say are Redstone’s concerns about the broader woes facing Viacom, which also owns MTV, Comedy Central and Nickelodeon cable networks. The company has delivered repeated weak results, and its stock price has plummeted about 38 per cent in the last year.
“Mr. Redstone remains keenly interested in the business of Viacom, and as its controlling stockholder, and as a director, he is currently considering his next steps,’’ the letter stated.
Removing Dauman would represent yet another startling turn of events in an already tangled corporate and family drama in which two of Redstone’s longtime confidants, including Dauman, were ousted from their positions of power in his empire and his long-estranged daughter emerged victorious in her quest to control the future of her father’s companies.
And now, the backdrop of it all is a lawsuit brought by Viacom directors that questions whether Redstone — who is 93, is in poor health and has not been seen publicly for a year — has the mental capacity to make such complex business decisions and whether he has been manipulated by his daughter, Shari Redstone.
Much is in dispute about the days after the May 16 letter was sent. Mike Lawrence, a spokesman for Sumner Redstone, said that Viacom’s leadership did not respond to the letter. Viacom directors, in turn, stated that they had not received a communication from Sumner Redstone and that they had been denied access to him.
They added that Tu, who was not known to be associated with Redstone, did not confirm to them whether or not he had met with Redstone. (In an email, Tu said that he had, in fact, met with his client.)
On May 17-18, Viacom’s board held 12 hours of strategy sessions, during which executives addressed issues including Paramount, according to Carl Folta, a Viacom spokesman. Sumner Redstone and Shari Redstone listened to the meeting by phone but did not raise any issues, Folta said.
Four days after the letter was sent, Sumner Redstone suddenly dismissed Dauman from the board of National Amusements and the trust that will control his companies after he dies or is declared incompetent. George Abrams, a 50-year representative of Sumner Redstone and longtime Viacom director, also was removed from the board and the trust. They promptly filed suit; Dauman called the dismissals an “unlawful corporate takeover”.
In their place, Sumner Redstone appointed two new members to his trust as well as new directors to National Amusements, all of whom have ties to his daughter.
On the Paramount sale, Sumner Redstone is open to receiving information that would change his mind, but has yet to receive any. “Unless Viacom’s board presents a concrete plan that convinces him otherwise, Mr. Redstone continues to believe that it is in the best interest of Viacom’’ that Paramount not be sold, Lawrence said in a statement.
Taking Paramount off the market would disappoint some of Viacom’s biggest investors. Mario Gabelli, whose investment firm, Gamco, is the second-largest voting shareholder in Viacom and CBS behind Sumner Redstone, has called a Paramount sale a logical step for Viacom. Gabelli said he was giving Dauman the “benefit of the doubt” to turn the company around.
“He has six to nine months to demonstrate something,” Gabelli said. “Why would you want to have Philippe go?”
According to one Hollywood financier, Viacom’s representatives in the last month were pushing away would-be bidders who might view Paramount primarily as a financial investment. Instead, the company was talking with prospective “strategic” partners — companies that might bring value through an alliance with their own media outlets or home markets.
The strongest potential bidders at that point appeared to be based in Asia. But close observers of the process said they could see no sign that a deal was close.
Several would-be partners for Paramount have taken themselves out of the running. Lions Gate Entertainment, for instance, made it clear that it would be interested in talking to Viacom only if buying the whole studio was an option; when Dauman insisted that only a slice was for sale, Lions Gate said no thanks.
Investment bankers with experience in the entertainment industry were also puzzled by Paramount’s announcement in April that it had sold pieces of its two biggest summer movies, “Teenage Mutant Ninja Turtles: Out of the Shadows” and “Star Trek Beyond”, to Alibaba, the Chinese e-commerce company. Those two movies would presumably be part of the appeal of investing in the broader studio, said the bankers.
In the face of the Viacom chaos, Paramount executives have tried to put their heads down and focus on an urgently needed box office turnaround. As news of Viacom’s latest legal battles broke, Paramount executives were busy staging a significant promotional event on their lot for “Star Trek Beyond”, which arrives on July 22.
— New York Times News Service
