As Yahoo (YHOO) is now enmeshed in a proxy contest for the future of the company, several investors and journalists have asked me in the past few days what's going on with Viacom (VIAB).
Viacom has no chance of the same kind of proxy contest that is happening at Yahoo, because it has a dual-class share structure. In fact, Viacom's investors who hold B shares don't even get to attend its annual meeting ¿ let alone vote. During Viacom's annual meeting a few weeks ago in Miami, only 30 people attended the meeting and that included Viacom's 11 directors, according to Seeking Alpha.
The Council of Institutional Investors has recently called on new IPO companies to not adopt the dual-class share structure and I heartily support that view, after seeing the Viacom situation first-hand.
Viacom investors holding the A shares re-elected the company's entire board of directors, despite Institutional Shareholder Services (ISS) recommending against six of the 11 directors for a second consecutive year. Viacom CEO Philippe Dauman gave a speech at the annual meeting, where he acknowledged he knew he needed to do a better job after the stock dropped 45% in the last year. That sounds like a reasonable idea to me.
So, while a proxy contest won't oust Dauman, the most likely way would be if Shari Redstone gained control of the Viacom board from her father in the event of either his death, or declared incapacitation. We don't have any special insight into Sumner Redstone's health. However, there was an interesting article in Vanity Fair written by Bill Cohan last week, which says:
Shari seems firmly in control of Redstone's day-to-day care¿as of this writing he seems to be hanging on by a thread¿and seems likely to have the necessary votes and authority to take control of the trusts that will decide the fates of Viacom and CBS when he dies. The money in his personal estate that was once earmarked for Holland and Herzer is to be donated to charities, thus saving Shari and her family millions in taxes that N.A.I. would have paid. "It's a coup," says the onetime friend of Redstone's. "It's a f---ing coup."
If Shari does have the necessary votes to take control of the trust for Viacom, it seems likely she will move to remove Dauman. As I said in my January report on Viacom, I can find no other single action that would positively move the stock than the CEO's ouster.
But none of us knows what Redstone's health is like, or when he will die, so let's discuss the actions Dauman could still take to increase the value of the stock today:
- Paramount. Viacom has hired PJT Partners to sell a minority interest in Paramount. The company has said a deal should be concluded in the next three months. There appears to be many interested potential buyers and Dauman has hinted that he favors a Chinese investor, who could help Paramount distribute films in that country. But at a banking conference this month, Jeffrey Katzenberg of DreamWorks Animation (DWA) said he was interested in serving as a joint partner with Viacom's Paramount. And the New York Post's Claire Atkinson indicated that Fox (FOXA) is interested in something similar, but Viacom had batted them away. If Dauman has ruled out certain bidders for a 50-50 ownership in Paramount, he should be clear with Viacom shareholders as to why.
- UK and Indian Assets. Viacom has a number of interests in UK and Indian media assets. They tend to be much faster growing assets than the US ones, although not as profitable. Dauman has started to describe their characteristics more frequently at fireside chats at banking conferences in the last month, but he should go one step further and break out their financial impact on Viacom.
- EPIX. Another forgotten asset Viacom holds a 50% stake in with MGM and Lionsgate (LGF). Like the foreign cable assets, Viacom has yet to consolidate their numbers on their financial statements. They have promised to down the road but should do it immediately.
- MTV. It's still a deadweight on the US cable assets. Dauman has promised a "renaissance" is currently going on at the network, which will soon be clear to all. Most Viacom shareholders, however, remain skeptical though and would like to be pointed to real evidence of a turnaround.
The bottom line here is that Dauman has done very little to increase the value of the stock, since Viacom's last earnings call. His performance resulted in the stock dropping 21.5% the next day after the call.
Much more work needs to be done, if Viacom's hidden value is to be unlocked.