In extending CEO Philippe Dauman’s contract yesterday, Viacom highlighted how he has “increased its operating free cash flow, expanded operating margins and restructured and strengthened its debt profile.” The company also noted how Dauman “increased efficiency in every area,” leading to a sharp rise in its stock price over the last two years.
Sounds a lot like Dauman is dressing Viacom up for a sale. Indeed, current and former Viacom sources say that the five-year extension, which keeps him at the helm of Viacom through 2016, doubles as a deadline for the CEO to negotiate a transaction.
Dauman is a dealmaker at heart, relishing negotiations as much as he does movie premieres.
“Will Viacom ever be sold? Well, Sumner’s going to die one day,” says a Viacom insider, referring to Sumner Redstone, the company’s almost-87-year-old chairman and controlling shareholder who has repeatedly refused to even entertain buyout offers in the past. “After that, it’s a question of what’s best for the company, and who knows right now. Right now the plan is to keep the stock moving, increase profitability, be as lean as possible, and be opportunistic with regards to a sale, merger, or acquisition.”
A Viacom representative declined comment.
There would be no shortage of buyers for Viacom, whose stable of assets includes cable networks MTV, VH1, Comedy Central, and Nickelodeon, among others, and film studio Paramount Pictures. Disney, Time Warner, News Corp., Liberty Media, Microsoft and even Google, where new documents in its $1 billion copyright-infringement lawsuit with Viacom were unsealed yesterday, are among the companies mentioned as potential buyers should Viacom be put up for sale. Dauman himself publicly confirmed that cable giant Comcast first approached Viacom about its interest in a deal and only turned its attention toward NBC Universal after being rebuffed.
Two things stopped Comcast’s interest in buying Viacom from going forward, however. The first was that Comcast was only interested in a deal that gave it a control position, and Dauman and the rest of Viacom’s executive leadership “weren’t going to make any deal where they weren’t in control of their own destiny,” says the insider.
The other, larger obstacle was Redstone. The mercurial octagenerian, who also owns CBS, controls 80 percent of Viacom’s voting stock, meaning no transaction can be affected without his approval. Viacom is nearer to Redstone’s heart than his family is, using a tiny movie theater chain in New England to build the company into a preeminent media empire. The working assumption among media industry bankers and executives is that as long as Redstone is alive Viacom is not for sale.
Though Redstone thinks he’s going to live forever—he drinks a daily regiment of antioxidants that he believes keep him young—he will ultimately be proven wrong on that count. Grim though it may be, the companies mentioned above, as well as others, are standing at the ready with buyout offers to put Viacom into play the day after his passing.
That puts Dauman in position to control Viacom’s fate. In addition to being CEO, Dauman also sits on Viacom’s board and serves as the trustee of Redstone’s estate. “He’s the guy who will ultimately determine what happens to the company,” says one former high-ranking Viacom executive.
All indications suggest that Dauman, a diminutive, nerdy, corporate lawyer, is relishing the movie premieres, award shows and other Hollywood perks that come with running Viacom. Sources say that he is focused less on a sale than on operating the company, extending its brands and building out its international presence.
These same sources also note, without the slightest trace of contradiction, that as a former mergers and acquisitions lawyer, Dauman is a dealmaker at heart, relishing negotiations as much as he does movie premieres. To be sure, when Dauman was brought in after the beloved Tom Freston was unceremoniously ousted in 2006, many insiders thought he was there solely to do a deal.
“No one looked at him as a great manager,” says another former high-ranking executive who worked at Viacom under both Freston and Dauman. “We thought he would come in, find a merger partner, and go out fast.”
Dauman is much too smart for that, however. For one thing, as the person closest to Redstone—he’s frequently referred to as the son Redstone never had, even though he does in fact have a son—Dauman knows that trying to sell Viacom would only incur Redstone’s wrath, which Dauman has managed to astutely avoid for more than two decades now (unlike Freston, Mel Karmazin, and Frank Biondi, a few of Viacom’s long line of fired CEOs).
Moreover, the first lesson in dealmaking is never sell at the bottom, which is where Viacom was in terms of both financial performance and cultural clout when Dauman took over. With Viacom’s operating performance improving, its $36 stock price near a 52-week high, and strong ratings gains at MTV and other networks, now is an ideal time to line up buyers.
Personally, Dauman stands to make a killing in a sale because most of his compensation is tied up in stock options, which is another reason why sources predict he’ll do a deal. Dauman already walked away from Viacom once before, the last time with a $34 million payout in the wake of the merger with CBS.
Absent a sale, the only way Dauman’s options appreciate is through operating the company and improving the stock price (i.e., doing all those things Viacom said he did in yesterday’s announcement). But a sale would include a takeover premium and thus incentive for Dauman to cash out.
“He’s setting himself up for a huge payday,” says the former executive who worked with Freston and Dauman. “Viacom is certainly going to be sold at some point. It’s just a matter of time.”
Say within five years?
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, Black Men, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.