VIA to make run at AOL? :
Karmazin, Redstone Sign
New Contracts at Viacom
By MARTIN PEERS
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- The deal worked out to preserve Viacom Inc.'s once-precarious management team appears
to have been designed to ensure harmony by promising a kind of mutually assured destruction if trouble
arises.
Viacom Chairman and Chief Executive Sumner Redstone emerged from the accord, announced Thursday,
with enhanced powers to run the company, in which he is the controlling shareholder. Mel Karmazin, the
company's president and chief operating officer, has the right to quit if Mr. Redstone uses the most
important of those powers. Mr. Karmazin has a loyal following among investors, so his departure likely
would hurt the stock price of Viacom, which own CBS, MTV and Paramount Pictures.
The new deal ends more than a year of surprisingly public wrangling in the executive suite that had dogged
the company. After all that, it isn't likely to significantly change how Viacom has been managed in recent
years, even though Mr. Redstone now gets the power to more easily get rid of Mr. Karmazin. Under the
governance rules in place since Viacom acquired CBS in 2000, Mr. Karmazin, formerly CBS's CEO, had
effective operating control of the combined company. Mr. Redstone's rights to dilute his control or fire him
were limited by his need to get approval from more than three-quarters of the board, terms that were due
to expire in May. Mr. Redstone also was restricted from changing the board until May.
The new terms outline a more typical breakdown of powers between a CEO and a chief operating officer,
which is what Mr. Redstone had been seeking. As spelled out in employment agreements both executives
signed, Mr. Karmazin retains "full authority over the operations of Viacom." Mr. Redstone has full authority
over corporate policy and strategy, including acquisitions. But he also can overrule Mr. Karmazin on
operating matters after consulting with the board, or fire him with board approval at any time. All officers
aside from Mr. Redstone report to Mr. Karmazin -- but Mr. Karmazin can't fire certain senior executives
without Mr. Redstone's approval. Mr. Karmazin's agreement runs until May 2006, while Mr. Redstone
continues to have no time limit on his agreement.
Most significantly, Mr. Redstone gets back the power to decide who is on the board. Mr. Redstone has
told investors he thinks the 18-member board is too big and wants it reduced to about 15. People close to
the situation said changes to the board are likely to be disclosed in coming weeks and will be voted on at
the company's annual meeting of shareholders in May.
Mr. Karmazin's trump card is that he can quit under certain circumstances,
including if he is overruled by Mr. Redstone on specific issues or if the chairman
throws too many of the independent directors off the board.
Reaction on Wall Street was positive. "This is what you want to have," said
Morris Mark, president of Mark Asset Management, who said his firm was
buying Viacom shares Thursday. Viacom shares were up $1.99 to $40.74 at 4
p.m. New York Stock Exchange composite trading.
Viacom's balance sheet is the strongest among the major entertainment
companies, and it is now expected to become more aggressive about acquisitions,
particularly of cable networks or television stations. Mr. Redstone has indicated to
investors in recent meetings that he is on the prowl for a big deal. He has hinted
that potential targets could be other big entertainment companies such as AOL
Time Warner Inc., whose cable networks Home Box Office, TNN, TNT and
CNN would fit well with Viacom's cable networks. Still, such a deal would be highly complex to pull off
and there is no sign that Mr. Redstone is seriously contemplating such a move. |
