Viacom Drama Gets Deeper With Altered Family Trust

Sumner M. Redstone recently decided to alter his trust, sparking a vicious battle over the future of his media empire, worth an estimated $40 billion. Philippe P. Dauman, the chairman and chief executive of Viacom (NASDAQ:VIA), Mr. Redstone’s entertainment company, was removed from the trust. Viacom director George Abrams was also removed from the trust. Mr. Redstone also removed them from positions on the board of National Amusements, through which Mr. Redstone controls his companies.

Mr. Dauman and Mr. Abrams, longtime confidants of Mr. Redstone, now find themselves pushed aside and are fighting back by challenging Mr. Redstone’s mental capacity. Monday morning, Mr. Dauman and Mr. Abrams filed a lawsuit seeking to immediately block the changes in the probate court in Canton, Mass. The lawsuit claims that Mr. Redstone is suffering “profound physical and mental illness” and being subject to the undue influence of his daughter, Shari Redstone.

Ms. Redstone, long estranged from her father, is now reconciled with him. She is also a director of Viacom. The weekend’s developments were considered a major victory for Ms. Redstone in her quest to shape the future of her father’s media companies. The actions taken by Mr. Redstone over the weekend align with her view of how his companies should be managed.

National Amusements currently controls Viacom through a high-vote Class A stock, which has 79.8 percent of the votes. National Amusements can now act to remove and replace all the Viacom directors except Ms. Redstone. Delaware, where Viacom is incorporated, allows director removal for any reason with or without cause. If this were to occur, the newly appointed directors could vote to remove Mr. Dauman as chief executive of Viacom.

Because of these acts, Mr. Dauman will no longer be able to control Viacom either before or after Mr. Redstone’s inevitable death. Newly named to the trust are Thaddeus Jankowski, the general counsel of National Amusements, and Jill Krutick, a former media executive. Ms. Krutick was also named to the board of National Amusements, along with Mr. Redstone’s granddaughter, Kimberlee Ostheimer.

In response to the lawsuit, Mr. Redstone’s legal team filed a petition in Los Angeles requesting a court confirm the validity of the changes he made. The petition said that a determination of Mr. Redstone’s incapacity would depend on a court ruling, or a document signed by three doctors, stating that he lacks the competency to manage his affairs. Because neither occurred before Mr. Redstone changed the trust, “there is no evidence” that Mr. Redstone was incapacitated or unable to manage his business affairs. That means he still had the power to remove or add trustees.

The changing of the trust came two days after Viacom’s board decided to no longer pay Mr. Redstone a salary. The move seemed to indicate that he is no longer involved in operations and deserving pay as a company executive. Mr. Redstone turns 93 on Friday.