Will New Viacom CEO Stand Out From Predecessor?

 | Aug 22, 2016 | 12:28 PM EDT
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The long-running saga between the Redstone family and Philippe Dauman officially ended on Saturday with the release confirming that Dauman would step down as Viacom (VIAB) CEO so that his long-running lieutenant could assume the role.

Our firm, SpringOwl, has been pushing for Dauman to exit as CEO since last January. Our 99-page report explicitly called out Dauman as the primary reason why the company has become detached over the past decade from the creative talent that had been responsible for building the hit cable shows that made Viacom so strong under former CEO Tom Freston.

The SpringOwl report helped to crystallize the focus of investors and the media on to Dauman's shortcomings as a CEO for the past decade (as well as his extremely generous compensation packages despite the below-average results). We will never know for certain, but the report also seemed to agree with the Redstone family views of the situation.

But getting rid of a poor CEO is only one step in turning that company around. Much more work needs to be done.

Viacom's shares dropped on Monday morning in what appeared to a "sell the news" reaction to the changing of the guard over the weekend. However, the reaction could also reflect investor concerns about the newly appointed interim CEO of Viacom: Tom Dooley.

Dooley is well-liked internally at Viacom and by many on Wall Street. Whereas Dauman was known for arrogance, Dooley is known for being a quiet doer, easy to get along with and mostly working behind the scenes. Dooley has also been a good foot soldier, supporting both his immediate boss, Dauman, and the owners, the Redstones.

Yet, that service is a concern for Viacom investors. Dooley seems inexorably linked to Dauman. So how can investors count on his promised next six weeks on the job as interim CEO leading to substantive changes at Viacom?

Dooley started working at Viacom in 1980. He worked closely with Dauman in the '90s. But when Viacom bought CBS (CBS) in 2000, there were too many chiefs at the top of the combined companies. Dauman and Dooley left with $150 million in severance each, according to The New York Times. They quickly formed a $300 million private equity firm (from their combined severance packages, apparently) called DND Capital Partners (Dauman and Dooley = DND).

But when Freston fell out of favor with Sumner Redstone in 2006, the duo were reinstated at the top of Viacom and have worked together closely ever since. If you were a political campaign manager, you'd have your work cut out for you portraying Dooley as an agent of change from Dauman. However, Dooley will try to convince the board and investors of that between now and the end of September.

At SpringOwl, we are going to keep an open mind. All we want to see is a higher stock price for Viacom shareholders. However, we want to be convinced that Dooley will bring a major difference to Viacom from Dauman and why he is the best choice vs. any other path to value creation.

Brian Robbins used to work at Viacom before leaving to start AwesomenessTV. Shane Smith sold 50% of the predecessor company Vice Media to Viacom 10 years ago. Why would either of these men want to come back now and work with Viacom with Dooley in charge? Would Samantha Bee have been likelier to stay at Comedy Central instead of bolting to Turner if Dooley had been in charge?

How can Dooley convince investors that he will assemble a management team around him who will help to rebuild the creative relationships in Hollywood to ensure hit shows start returning to Viacom? Will the hit shows come faster than if Viacom had another outsider CEO in charge or if Les Moonves of CBS was in charge?

Dooley has six weeks to answer those questions.

SpringOwl remains skeptical -- and will continue to press the case for the right moves to unlock the most value in Viacom's depressed shares.

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