Yesterday, Massachusetts Probate and Family Court ruled that Viacom (VIAB) CEO Philippe Dauman can continue his lawsuit to prove that controlling shareholder Sumner Redstone was mentally incompetent when Redstone removed Dauman from the family trust several months ago.
Subsequent to Dauman's removal from the trust, he -- and four other Viacom directors -- were also removed from the Viacom board.
In the judge's ruling, he said the case could proceed and that it would do so in Massachusetts, not in California where Redstone resides. If the trial proceeds, it will begin in October.
On the surface, it seems to be a victory for Dauman to keep his job.
However, the trial is unlikely to proceed. There's more likely to be settlement negotiations soon. Here's why.
The judge yesterday also denied Dauman's request to be allowed to have his doctors meet with Sumner Redstone and do a mental competency examination. Instead, the judge said that Dauman's legal team would have to rely on existing medical records, which show Sumner's mental state at the time he removed Dauman from the trust earlier this year.
Those records -- which have been used successfully by Redstone in other court proceedings about his mental capacity -- are likely to demonstrate that he was competent back then.
Therefore, this opens the door for settlement talks to ramp up this weekend about terms of Dauman's departure from Viacom.
There have been rumors about such settlement talks having already started over the last two weeks. If this is true, both sides might have been waiting to hear the ruling from the Massachusetts court yesterday before finalizing anything. There's also a hearing scheduled for today in Delaware court between the two sides that could factor in to negotiations.
If there is a settlement between Dauman and the Redstones, expect Dauman to drop the lawsuits and leave Viacom with a handsome golden parachute. Dauman would also likely depart with Viacom COO Tom Dooley as they have previously entered and exited the company together. (Sumner Redstone and his daughter Shari Redstone are Viacom's largest shareholders.)
Such a settlement would clear the way for the new Viacom directors, which were proposed several weeks ago, to be installed on the board. And it's that board which would then consider strategic actions such as a minority stake sale of Paramount to Chinese real estate and entertainment company Dalian Wanda or other action like a potential merger with CBS (CBS) .
If yesterday's ruling opens the door to escalated talks between Dauman and the Redstones and Dauman's exit from Viacom, it is a win for minority shareholders. The stock has been acting positively for months on rumors that Dauman's tenure at the company may be coming to a close.
If Dauman leaves, speculation will likely begin about whether a new CEO will be named or if the Redstones might prefer to see Viacom merged back with CBS with Leslie Moonves as CEO. Both scenarios could be positive for shareholders, depending on who the new CEO might be or whether CBS is willing to pay a large premium to Viacom shareholders in a merger transaction.
The first critical step to benefit Viacom minority shareholders, however, would be an agreement between the Redstones and Dauman about the terms of his exit. The sooner this happens, the better.