In addition, Krutick and Redstone's oldest granddaughter, Kimberlee Ostheimer, are named as directors at National Amusements.“This is my trust and my decision. I have picked those who are loyal to me and removed those who are not,” Redstone said in a statement.
(Reuters) - The legal battle over control of Sumner Redstone's $40 billion media empire has investors hopeful that change will come to underperforming Viacom Inc.
On Friday, Sumner Redstone removed both Viacom CEO Philippe Dauman and Viacom board member George Abrams from the trust that will determine the future of CBS and Viacom after controlling shareholder Redstone dies or is declared mentally incapacitated.
Dauman fired back on Monday saying the moves to replace him and Abrams from both the trust and National Amusements board would amount to an "unlawful corporate takeover" by Sumner's daughter, Shari Redstone. Sumner Redstone's privately-held movie theater chain National Amusements holds 80 percent of the voting stock in both Viacom and CBS.
The outcome of the court cases, and who ends up with control over the trust, and over the National Amusements board, will have wide-ranging implications for Viacom and CBS shareholders and could result in changes at the top of both companies, possibly through mergers and acquisitions.
Some investors are hopeful that change is imminent. Viacom shares rose 2.5 percent to $40.02 on Monday.
“This whole company should be a case study of how to destroy shareholder value,” said Salvatore Muoio, principal with New York-based S. Muoio & Co, a major owner of Viacom voting shares. “They should sell this business to the highest bidder and get it over with.”
Michael Cuggino, president and portfolio manager at San Francisco-based Permanent Portfolio Family of Funds, which owns voting shares of CBS and Viacom, said he would also welcome some change at Viacom, including a sale, but had concerns about what kind of premium Viacom could get from a potential buyer right now.
Cuggino said he would welcome the idea of Viacom becoming part of CBS again, but would need to make sure it made sense for CBS. Viacom spun off CBS in 2006.
"There are certainly a lot of good synergies there," he said.
Others investors are showing more patience. Mario Gabelli, the second-largest owner of Viacom voting shares, told CNBC on Monday that Dauman has six months to turn the company around.
Representatives for CBS and Viacom declined to comment.
Viacom, like other media companies, has suffered from falling ratings at its cable networks such as Nickelodeon and MTV as younger viewers migrate online and to mobile video.
Over the past 12 months, Viacom is down 40 percent, lagging the Standard & Poor's 500 Media Index, which is off only 4.7 percent. CBS shares edged down 0.5 percent to $52.49.
Redstone, who turns 93 on Friday, suffers from diminished mental capacity and is dependent on his daughter, Shari Redstone, the lawsuit said.
"Shari Redstone is attempting to illegally hijack her father's well-established estate plan," Dauman said in a statement.
The complaint named Shari Redstone, her son Tyler Korff, as defendants and trust members David Andelman, Norman Jacobs and Leonard Lewin as nominal defendants.
A statement sent on behalf of Shari Redstone said, “It is absurd for anyone to accuse Shari of manipulating her father ... Sumner makes his own decisions regarding whom he wants to see both in his home and elsewhere."
Redstone's attorneys have said he made the changes to the trust and board after trying to reach out to Viacom's board to discuss the future strategy of the company.
The California and Massachusetts courts will need to sort out which of them has jurisdiction, and that may not be easy, said Keith Davidson, a probate lawyer in California.
“Massachusetts will likely have a strong preference to let California take jurisdiction, especially since a part of the case has already been litigated here. But you never know,” Davidson wrote in an email.
The standards for determining that someone is not mentally competent differ. California requires evidence of a mental defect that correlates to the specifics of the situation, such as a will or contract; Massachusetts does not have that requirement but does look to expert opinion and would evaluate a person’s ability to manage affairs effectively, lawyers said.
Viacom said in a statement its board has tried to meet with Sumner Redstone many times, adding that he was silent during a recent call about the company's strategy.
Sumner Redstone has not participated in an earnings conference call or an annual investor meeting since 2014.
Sumner Redstone plans to name National Amusements general counsel Tad Jankowski and family friend Jill Krutick to the trust, sources told Reuters on Sunday.
Besides Shari, trust members include her son, lawyer Tyler Korff; David Andelman, another lawyer who is on the CBS board; Norman Jacobs, Sumner Redstone's divorce lawyer; and Leonard Lewin, who represented Redstone's first wife, Phyllis, in her divorce from Redstone.
Sumner Redstone and Dauman have worked together for more than 30 years, and Redstone has called Dauman "a great friend."
In February, Shari Redstone was the only one to vote against Dauman's elevation to executive chairman of Viacom to replace her father.
This month, a judge dismissed a lawsuit by a former girlfriend who had argued Redstone was not mentally competent to remove her from his advance healthcare directive.
The case, which claimed that Redstone was “a living ghost,” shined a spotlight on Redstone's health.
The mogul struggled to speak when questioned by attorneys. But he was clear about wanting ex-girlfriend Manuela Herzer out of his life, and putting his daughter in charge of healthcare decisions if he could no longer make them.
In that trial, Dauman submitted statements in November that Redstone was “engaged and attentive” in recent conversations.
However, the complaint filed Monday claims that Redstone suffers from dementia, impaired cognition, a slowness of mental processing, a loss of memory, apathy and depression.