Viacom “continues to pursue” a deal to sell a 49% stake in Paramount, but needs a judgment about Sumner Redstone’s competence to escape a potential “cloud,” a lawyer representing Lead Independent Director Frederic Salerno says in a letter today to Delaware’s Chancery Court.
The court is weighing whether Redstone’s National Amusements, which owns 80% of Viacom’s voting shares, had the authority last month to replace five directors — including CEO Philippe Dauman — and change its bylaws to give Sumner and Shari Redstone authority to veto a Paramount deal. The decisions are on hold until Delaware rules.
Judge Andre Brouchard said last month that the competence of 93-year-old Sumner Redstone is relevant to any decision he’ll make. But he declined to order an independent exam, deferring to a Massachusetts Probate and Family Court judge who’s also weighing whether to approve one.
Viacom and Dauman say that Redstone isn’t aware enough to manage his affairs, and is being manipulated by his daughter, who’s Viacom’s Vice Chair. The Redstones say that Sumner is still calling the shots over his media empire.
“At this point, we do not know when the Massachusetts court will make its decision and, more significantly, we do not know how that Court will adjudicate the standard of incompetence,” Salerno says. “Accordingly, we believe there is a risk that this Court could await that decision for some time and yet not receive a ruling that could be necessary for the determinations this Court must make.”
The Massachusetts court must decide whether Redstone is competent enough to pick members of his family trust. But Delaware may insist that Redstone also be sound enough to decide whether to “restructure the governance of a multi-billion dollar public company,” the letter says
Meanwhile, there’s a risk that Redstone’s condition will deteriorate or that he’ll die — making it harder to determine whether the decisions to change Viacom’s board and bylaws were legitimate.
The uncertainty could have a “debilitating effect on Viacom’s business and ultimately on Viacom stockholders,” Salerno says.
Brouchard said in a June 22 hearing that he won’t “wade into that terrain right now” in part because “there are questions of human dignity to a very elderly person. That’s treacherous ground to dive into too quickly. And so I am going to be cautious in that respect.”
At a June 30 hearing, Massachusetts Judge George Phelan said he has “a lot of information to digest.” He added: “Obviously I don’t know what the outcome is going to be.”