 |
Another Split at Viacom
Sumner M. Redstone, Viacom chairman, right, fired Tom Freston, the chief, saying Mr. Freston had not pursued Internet opportunities.
Just two weeks after publicly breaking with the movie star Tom Cruise, Sumner M. Redstone, Viacom’s 83-year-old chairman, announced an even bigger separation yesterday: he forced out his top executive, Tom Freston, reasserting his control over the media giant he built over decades.
The ouster of Mr. Freston came just eight months after Mr. Redstone split his company into two parts — CBS and Viacom — putting Mr. Freston in charge of Viacom, which he expected to be the faster-growing company.
It has not worked out that way. While CBS shares have risen 9.2 percent this year, shares of Viacom — owner of MTV, Nickelodeon and Paramount — have fallen 11 percent as of Friday. Mr. Redstone, also chairman of CBS, has told associates he believed Mr. Freston had not pursued opportunities on the Internet aggressively enough.
Viacom shares have suffered because of concern that advertisers, and young audiences, will leave the company’s cable networks for the Internet.
The dismissal yesterday sent shock waves through Hollywood and Wall Street, where the re-emergence of Mr. Redstone as an active force in the company was greeted with some trepidation. Shares of Viacom dropped 5.6 percent, to close at $34.89.
Mr. Redstone’s disenchantment with the direction of Viacom had been bubbling under the surface for months, but the end for Mr. Freston came abruptly. Mr. Redstone invited him to his Beverly Hills home on Monday afternoon and in his library, amid an enormous collection of rare saltwater fish, lowered the boom.
Mr. Freston, who has worked for Mr. Redstone since 1987, was stunned, associates said.
He is being succeeded by Philippe P. Dauman, who will become chief executive, and Thomas E. Dooley, who will be senior executive vice president and chief administrative officer. The pair had worked with Mr. Redstone for many years at Viacom and left only after Viacom acquired CBS in 2000, and the CBS chief executive, Mel Karmazin, called them redundant.
Mr. Redstone has a history of ousting his handpicked top executives, including Mr. Karmazin, who left in 2004, and Frank Biondi Jr., who left in 1996.
“It was a very difficult meeting with Tom,” Mr. Redstone said in a telephone interview yesterday. “I was practically crying. He did a very good job in building the MTV networks.”
Mr. Freston did not return calls seeking comment.
Contrasting Mr. Dauman with Mr. Freston, Mr. Redstone said of Mr. Dauman, “Philippe would enhance our growth and would be more aggressive and entrepreneurial and would never let anything end up in the competitors’ camp.’’
Mr. Redstone was referring to Viacom’s having been outbid for MySpace.com by the News Corporation, and his view that Viacom had failed to make progress in the digital media arena.
In a telephone conference call with analysts and the press, Mr. Redstone compared Viacom unfavorably to CBS, where, he said, the board noted that “CBS has been making new highs, and we were off $7 or $8 from our high.’’
As old-line media companies like Time Warner, the Walt Disney Company and Viacom face skepticism about their growth potential, media executives are scrambling to adapt. But no chief executive has been more aggressive than Mr. Redstone in trying to reshape his company to please Wall Street.
Mr. Redstone has told associates he didn’t think Mr. Freston worked hard enough. But yesterday Mr. Redstone denied that. “Tom worked very hard,” he said. “He would come over and discuss everything with me. If he was in India, he would call me. I was always involved.’’
When Mr. Redstone chose to divide the company, Mr. Freston, known for his ability to understand the interests of young audiences, was ambivalent about taking the job of chief executive. In a 2002 profile in The New York Times, Mr. Freston dismissed speculation that he was in line to succeed Mr. Karmazin. “You want to spend all your time talking to investors, dealing with Sumner?” he asked. “How much fun is that?’’
Two years later, when Mr. Redstone was preparing to oust Mel Karmazin as president, he offered Mr. Freston the job of chief executive of Viacom, but Mr. Freston was reluctant. He agreed to take the post only when Mr. Redstone suggested it might otherwise go to Les Moonves, then chief executive of CBS. The job was later divided between the men when the company was split in two.
Still, some critics say Mr. Redstone’s move to oust Mr. Freston was precipitous and perhaps irresponsible after less than a year.
“What shocked people today was the re-emergence of Mr. Redstone,” said Michael G. Nathanson, a media analyst at Sanford C. Bernstein & Company. “People didn’t think he was so involved.”
He added: “There is general discomfort because of his acquisitive history — buying costly assets — and his obsession about the short-term movements in the stock share price that brings about seemingly whimsical decisions.”
Some said Mr. Redstone’s decision to remove Mr. Freston raises question about his judgment.
“I think that Sumner has just lost it,” said Bruce Greenwald, a professor of finance at Columbia University who teaches a course on media. “This guy has been working for him for 20 years. He has one bad year and he gets rid of him. Nothing has changed. But his plan for breaking up the company to unlock value does not seem to have worked.”
Several analysts on Wall Street questioned the wisdom of bringing in a team that had never run a major entertainment company, but that were best known as close associates of Mr. Redstone. Jessica Reif Cohen, an analyst at Merrill Lynch, downgraded the stock to neutral from a buy, saying the new team is not experienced enough and the changes will be disruptive.
For the 52-year-old Mr. Dauman, who has worked with Mr. Redstone for decades and advised him in his battle against QVC Inc. to acquire Paramount Communications, the job seemed like a “wonderful opportunity and I felt that I was coming home again.’’
Shortly after Mr. Redstone approached him, but before the board voted to approve the appointments on Monday evening, Mr. Dauman enlisted Mr. Dooley, 49. Both are Viacom board members and have an investment company that has put money into a variety of ventures, including the Tennis Channel.
Mr. Freston and Mr. Moonves of CBS had both been criticized by investors for the pay packages they were awarded in 2005, including salary, bonus stock options and other perks. Mr. Freston’s salary and perks were valued at about $20 million and his stock options, like those of Mr. Moonves and Mr. Redstone, were valued at $33 million.
Yesterday, the company said Mr. Dauman and Mr. Dooley were taking relatively small salaries, and most of their compensation would be tied to the stock’s long-term performance. Mr. Dauman and Mr. Dooley, who each left Viacom in 2000 with fortunes valued at $150 million, are also buying Viacom stock personally. Mr. Dauman is spending $5 million and Mr. Dooley is spending $4 million.
Meanwhile Mr. Freston’s contract gives him severance of roughly $60 million in a cash payout, said Brian Foley, an independent compensation consultant based in White Plains. That includes $55.7 million in severance from now to June 2009 and $3 million for consulting over the next three years, as long as he does not accept a full-time job that competes with Viacom, according to the terms of his employment agreement.
He also gets stock options worth about $20 million, according to the widely used Black Scholes method of valuing stock options.
Mr. Dauman said he had spoken with Viacom’s top operating executives, including Judy McGrath of MTV and Brad Grey of Paramount, and he expected them to stay at the company. He said he had no plans for any major acquisitions.
Some Wall Street analysts had worried yesterday that with Mr. Redstone advocating aggressiveness, the company might start making overpriced acquisitions that could hurt its stock price.
Mr. Redstone also said he would not consider putting CBS and Viacom back together again.
