Sprawling Battle for Control of Viacom Advances in Court
The bicoastal battle for control of Viacom (VIAB) - Get Report continued Thursday, as a Massachusetts court heard Sumner Redstone's motion to dismiss litigation brought by chairman and CEO Philippe Dauman and director George Abrams.
Dauman and Abrams brought suit in the Norfolk County, Mass., Probate and Family Court in May, arguing that Redstone did not have sufficient control of his faculties when he removed the executives as trustees for a family trust and from the board of National Amusements, which controls Viacom. Meanwhile, related legal actions are playing out in Delaware and California.
Judge George Phelan did not rule Thursday and did not provide a timeline for a decision, a person at the hearing said. The judge asked questions on subjects ranging from technical matters to facts of the case, the source said. Topics ranged from jurisdiction to mental capacity, undue influence, the family trust and the medical and legal professionals working with Redstone.
Shares of Viacom gained $1.11, or 2.75%, to $41.47 on Thursday.
Dauman and Abrams call their removal "utterly invalid" in pleadings, alleging that Sumner Redstone's daughter, Shari Redstone, had manipulated her father. "Mr. Redstone is a very sick 93-year-old who simply lacks capacity," said a memorandum of law opposing the motion to dismiss. Dauman and Abrams have called for an examination of Redstone.
Redstone's camp argued in a brief that the question of mental capacity is moot. If Sumner were incompetent, the trust, which supported the dismissal, gains control of his stake. Redstone's fellow trustees signed off on the dismissal.
"Those removal actions were not taken by Sumner alone, but instead, in anticipation of this very legal challenge, were ratified by a majority of the trustees who would act in the event Sumner had, in fact, been incapacitated or [become] a victim of undue influence," the pleading said.
Redstone's lawyers described the moves as "after-the-fact attacks on Sumner's decision-making" and note that Dauman defended Redstone's mental health during recent litigation with ex-girlfriend Manuela Herzer.
"An immediate mental examination would serve no purpose but to needlessly harass and embarrass Sumner," pleadings said. Redstone's lawyers have suggested the case should be heard in California, where the defendant, his doctors and nurses live.
Viacom, meanwhile, has had issues outside of the courtroom as well.
The parent of MTV, Nickelodeon, Comedy Central and Paramount Pictures provided disappointing financial guidance in mid-June, informing investors that it expects third-quarter earnings of $1 to $1.05 per share. Wall Street had anticipated $1.38 per share.
Management blamed the misfire on disappointing results from Teenage Mutant Ninja Turtles: Out of the Shadows and on delays in finalizing a subscription video on-demand deal. Still, Paramount's domestic box office is up 40% year over year to $111 million through June 19, according to Wells Fargo Securities. Only Disney has had a bigger percentage increase, growing 65%, to $642 million.
BTIG analyst Rich Greenfield suggested in recent reports that a regime change at Viacom could lead to a merger with CBS (CBS) - Get Report , which Redstone also controls.
"Investors increasingly fear that companies without broadcast TV or must-have sports content such as Viacom, Discovery (DISCA) - Get Report , AMC (AMCX) - Get Report and Scripps (SNI) will have the hardest time finding their way" into slimmed-down cable and satellite television bundles, he wrote.
Marci Ryvicker of Wells Fargo Securities suggested, however, that CBS chairman and CEO Les Moonves likely would not take on its former sibling.
"While just slapping [Viacom] onto CBS does seem accretive at first, we can't find a scenario where the [pro forma company] grows faster than standalone CBS over the long run -- which is a recipe for multiple contraction," she wrote.