Freston Resigns as President, CEO of Viacom

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Viacom Inc. (VIA, VIAB) said Tuesday its new executive leadership will position the entertainment giant to be a fierce competitor and regain the confidence of Wall Street.

Amid a lackluster stock performance, Tom Freston resigned Tuesday as president and chief executive of Viacom, weeks after the company fired actor Tom Cruise and about nine months after Mr. Freston had assumed the controls following the company’s split with CBS Corp. (CBS, CBSA).

So far, the Street hasn’t taken kindly to the news, as Viacom’s A shares recently dropped $1.84, or 5%, to $34.12, while its B shares fell 5.1%, or $1.87, to $35.10.

Mr. Freston was replaced by Philippe P. Dauman, 52, and the company named Thomas E. Dooley, 49, to the new position of senior executive vice president and chief administrative officer.

While noting his respect for Mr. Freston’s leadership, Executive Chairman Sumner Redstone said during the conference call that the board felt Viacom wasn’t “moving ahead as aggressively and entrepreneurially as we” could.

Mr. Redstone said the stock price suggested that “Wall Street lacked confidence” in the management under Mr. Freston.

“Those who don’t move quickly will be left behind,” Mr. Redstone said, referring to changing market dynamics. He added that Mr. Dauman “will let no opportunity pass and let no competitor ever beat us to the trophy.”

Messrs. Dauman and Dooley have worked closely with Mr. Redstone and with each other for more than 20 years. Since 2000, they have been co-chairmen and chief executives of DND Capital Partners LLC, a private-equity firm specializing in media and telecommunication investments.

Mr. Dauman, who has been a Viacom director since 1987, has served as a member of Viacom’s executive committee, as an executive vice president and as general counsel of Viacom. Mr. Dooley, who started his second stint as a Viacom board member in 2006, also held various corporate positions at Viacom from 1980 to 2000, including as a member of the executive committee and as an executive vice president.

Mr. Redstone noted the board sized up the company’s stock price against CBS since the split, which was making new highs, and saw that Viacom’s shares had dropped about $7 or $8 from its highs. Mr. Redstone added that when he, Mr. Dauman and Mr. Dooley were part of the same team, Viacom’s stock tripled.

All those factors “certainly must have influenced the board,” Mr. Redstone said.

Mr. Dauman, who put down $5 million of his own money into Viacom’s stock, said during the call that he didn’t intend “to make a radical shift in strategy” and didn’t foresee any major acquisitions.

He also said there were no apparent operational issues to necessitate a change in earnings guidance, but there would be a one-time charge related to severance payments under Mr. Freston’s contract.

The 60-year-old Mr. Freston had been under pressure because of Viacom’s sluggish stock price, and company watchers questioned Mr. Freston’s authority within the company after Mr. Redstone fired Mr. Cruise in a high-profile move last month.

The addition of Messrs. Dauman and Dooley, two longtime Redstone associates, suggests the 83-year-old may be increasing his role again in the company he founded.

In a press release Tuesday, Mr. Redstone said,”I could not be more pleased to be teaming up again with Philippe and Tom, who are two of the most extraordinary executives I have ever known and with whom I shared the most productive and successful period in Viacom’s history.”

Mr. Redstone also praised Mr. Freston in the press release. “I have great respect for Tom Freston and want to personally thank him for his tremendous contributions to Viacom over the past 20 years. Tom successfully built MTV Networks into an unmatched force in the entertainment industry and assembled a best-in-class operational team to build on that foundation. Tom has been a friend and a colleague for many years and we wish him well as he moves on to the next stage of his career.”

Mr. Freston, for his part, spoke highly of his replacements in the company’s press release. “I have worked closely with Philippe Dauman and Tom Dooley over the years and have the highest respect for their abilities. I have every confidence that Viacom is well positioned to prosper under Philippe’s leadership. I will do all I can to insure a smooth transition.”

The decision to separate the fastgrowing MTV Networks from the more mature CBS TV and radio operation coincided with a sudden slowdown in cable-TV advertising sales. The new Viacom, which owns household names such as MTV, Nickelodeon and VH-1, has fallen short of its aggressive profit forecasts. While Viacom shares have fallen since the split, CBS’ stock has gained nearly 13% during that time frame. Compounding the troubles between the two companies were reports of a fierce rivalry between the two companies, both still controlled by Redstone.

Mr. Freston and his CBS counterpart, Les Moonves, have sparred publicly as competition between the two companies escalates. The companies are also squabbling over a $291 million payment as they attempt to divide the old company’s debt between them.

Relations between Viacom and CBS, combined in a 2000 merger, had never been particularly warm, as cable networks and broadcasters fiercely competed for both viewers and advertisers. It’s noteworthy that Freston’s move comes on one of the more eagerly awaited days for CBS — the start of Katie Couric as anchor of the “CBS Evening News.”

Mr. Redstone has been publicly supportive of Mr. Freston, even as recently as last week. After people questioned Mr. Freston’s role in the company following Mr. Redstone’s prominent firing of Mr. Cruise, the Viacom founder told Newsweek magazine for its September 4 issue, “I have complete faith in Tom and [Paramount chairman Brad Grey], and they are clearly running the business.”


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