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Redstone Changes Viacom Bylaws on Eve of Hearing

Before the curtain went up on a hearing in a case to determine whether Sumner Redstone is in control of his media empire, the mogul took steps to ensure Viacom can’t sell a stake in Paramount Pictures as Viacom’s CEO intends.

The Massachusetts suit brought by Viacom CEO Philippe Dauman, a long-time consigliere for Redstone, charges that Redstone’s recent actions have been improper and that he is under the influence of his daughter Shari Redstone.

The Redstones have been at war with Dauman and Viacom’s other independent directors. The drama began when Dauman was removed as trustee of the trust that will oversee $40 billion in media assets when Redstone dies and as a director of the family holding company. Redstone has criticized the way Dauman has managed Viacom as its cable networks including MTV and Comedy Central have struggled. He has also opposed plans to sell a stake in Paramount, acquired in a fierce takeover battle won together by Redstone and Dauman

“Shari Redstone is attempting to illegally hijack her father’s well-established estate plan by removing professional managers and reportedly installing her daughter, an employee and a friend who are firmly under her control,” said Dauman in a statement.

“We all continue to have great respect and affection for Mr. Redstone, but he is clearly being manipulated by his daughter, Shari. After years of estrangement, she has inserted herself into his home, taken over his life, and isolated him from anyone not under her control, including long-time business colleagues,” Dauman said. “In fact, she has recently and repeatedly arranged to deny requests for Viacom Board members to meet with her father.  Her singular goal is to assume complete control of his businesses, despite Mr. Redstone’s long-term desire for a professionally managed Trust and an independent Board of Directors. Shari’s actions amount to an unlawful corporate takeover, and if effectuated, could have far-reaching consequences for thousands of shareholders and employees of Viacom.”

The most recent action was a move by Redstone’s National Amusements, which owns an 80% voting stake in Viacom and CBS, to require that any transaction affecting Paramount must be unanimously approved by the Viacom board of directors.

Redstone owns 80% of National Amusements, which also moved to change the way in which Viacom’s bylaws can be changed in the future and to amend a requirement that all corporate litigation involving Viacom take place in Delaware Chancery Court.

“National Amusements has one objective with regard to Viacom and that is to create long-term value for the company's stockholders,” the company said in a statement. “While National Amusements is not opposed to a transaction that would unlock value at Paramount, it firmly believes that any proposed transaction should be thoroughly vetted and approved by Viacom's full Board, and the rationale for such a transaction should be clearly articulated to Viacom's stockholders in advance. National Amusements believes that any disposition of a key asset of Viacom must be part of a carefully constructed long-term strategy; it is not an end in and of itself.”

The company also said that the by-law changes were not connected to Dauman’s suit.

“These illegitimate actions stem directly from the invalid changes made to the National Amusements, Inc. board and are completely at odds with good corporate governance," according to a spokesman for Viacom. “They are clearly intended to impede the ability of the Viacom Board of Directors to fulfill its obligations to all stockholders, including the public non-controlling stockholders who own 90% of the equity of Viacom."

Added into the stew Tuesday morning were declarations from other players in the Redstone drama.

Submitted to the court was a declaration from Manuela Herzer, Sumner Redstone’s former live-in companion who was evicted from his home, removed as a health-care decision maker, and cut out of his will.

Herzer sued in Los Angeles charging that Redstone was incompetent to make health care and financial decisions but lost.

In her declaration to the Massachusetts court, she says, that last year, Redstone stopped showing interest in his businesses. She said he stopped following the stock market or paying attention to the stock ticker in her home.

Herzer also said that Redstone “had always rejected Shari Redstone’s criticism of Dauman. The abrupt termination is inconsistent with my prior observations of Mr. Redstone and his prior defense of Mr. Dauman.”

Keryn Redstone, Sumner Redstone’s granddaughter and Shari Redstone’s niece, submitted the Herzer declaration and also a declaration of Dr. Stephen Read, who had examined Redstone as part of Herzer’s suit.

Read’s statements rebut a report submitted to the court last week from geriatric psychiatrist Dr. James Spar, who concluded that Sumner Redstone retains the legal mental capacity to make decisions.

As of an interview and evaluation of Redstone he conducted Jan. 29 in connection with the Herzer case, Redstone "had significant impairments in multiple areas of mental function, including short and long-term memory, executive functions, language and the ability to articulate speech, arithmetic, reasoning and aspects of thought processing and mood dysregulations,” said Read, who placed Redstone on the severe end of moderate in the spectrum of dementia.

“In my professional opinions, Mr. Sumner Redstone did not consider or understand or appreciate the consequences of his actions on Oct. 12 2015 and October 16, 2015 [removing Herzer] and he was in fact in capable of doing so as a result of the above described deficits in mental function,” Read said.

Read also looked at the videotaped testimony by Redstone used in the Herzer case.

“Based on video tape, Redstone’s profound impairments and deficits in mental function have certainly persisted and in fact appear to have worsened from Jan. 2016 to May, when Redstone purportedly took the actions that are the subject of this lawsuit,” he said.

“Mr. Redstone’s vulnerability to influence as regards both the explicit acts and formation of false believes undermines the validity of any provision regarding any and all testamentary documents executive by Mr. Redstone on our after Oct. 16, 2015 and up to the present time, including any documents that he purportedly executed in May of this year with regard to removing and appointing directors and trustees of his various business interests,” Read said.

Read also questioned the way Redstone’s attempts to communicate were being interpreted. She charged that during the deposition, Redstone’s speech pathologist began translating the answers before Redstone finished verbalizing.

“A comparison of the transcript with the actual video would I believe leave an objective observer doubting  the full validity of that transcript,” he said.

Tuesday’s hearing is scheduled to begin at 9 a.m. ET in Massachusetts Probate and Family Court in Norfolk County. Judge George Phelan is presiding.

Dauman and another long-time Viacom director George Abrams, are seeking expedited discovery in the case so that Redstone can be examined and possibly testify before his condition worsens.

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.