Viacom Succession Plan Sends Its Shares Tumbling

Viacom shareholders were anything but pleased that the stumbling media giant’s board of directors decided to give CEO Philippe Dauman the nod as executive chairman, taking the reins from ailing founder Sumner Redstone.

Dauman’s appointment came a day after Redstone stepped down as executive chairman of his other media company, CBS Corp., with CEO Les Moonves named to the post.

But while Dauman’s appointment should have come as no surprise, Viacom shareholders had been optimistic that a bigger change would come for the pay TV giant, especially since board member Shari Redstone, Sumner Redstone’s daughter, had publicly stated she preferred that the board pick a new chairman with no ties to the family. (Dauman is a longtime friend and confidant of Sumner Redstone and is his healthcare agent.)

With that in mind, Viacom shares were up about 6% in early trading Feb. 4 but fell immediately after it was announced that Dauman had been named chairman. The stock closed at $45.34 on Feb. 4, up 1.5%, but continued its slide on Feb. 5 down 5% ($2.41 each) in early trading. Viacom stock was down 45% in 2015.

The call for change at the top has been ringing for months. In January, activist investor SpringOwl Asset Management released a 99-page report demanding Dauman and his management team step down and Viacom refocus its resources on developing hit shows. While that is much easier said than done, Viacom has been in a pickle since December 2011, when it first saw signs of ratings declines at its top kids’ network, Nickelodeon.

While Dauman has shaken up the ranks, restructuring the company into two separate Kids and Entertainment units last year, and has pumped billions into original content over the years, Wall Street still perceives Viacom as rudderless. Maintaining the management status quo — and raising Dauman’s compensation by 22% to $54 million in fiscal 2015 — can only exacerbate that feeling.

The drama has also overshadowed what some analysts see as the seeds of a turnaround. In a research note Telsey Advisory Group analyst Tom Eagan wrote that an improved scatter market could boost ad growth in 2016, and the continued launch of international channels could increase overall revenue. Still, he noted that Viacom’s trading multiple is at the bottom of the sector range and the management issues linger on.

“Although there appears to be a turnaround in place, we would not be surprised if the assets are sold or split up,” Eagan wrote.

Shari Redstone was the only board member to vote against Dauman’s appointment, according to reports, and her statement after the announcement that she would advocate for the best interests of shareholders suggests that the war may not be over. The elder Redstone, 92, controls about 80% of Viacom’s voting stock, and though that will be placed in a trust after his death — run by a seven-member committee, including his daughter and Dauman — there is still the potential for intrigue.

In an email note, Pivotal Research Group senior research analyst Brian Wieser said Shari Redstone’s decision not to accept the board’s offer to replace her father as executive chairman (as was her right) “suggests that when the trust is in control, it will be focused on purely financial goals rather than sentimental ones.”