Freston Resigns as Viacom CEO

Sep 5, 2006  •  Post A Comment

Tom Freston resigned as president and CEO of Viacom Inc. after the company’s stock fell and the executive’s digital-media strategy failed to satisfy his boss, Sumner Redstone.

Viacom, owner of MTV Networks cable channels including VH1 and Nickelodeon, named Philippe Dauman as president and CEO. Thomas Dooley was named senior executive VP and chief administrative officer of the company.

Both Mr. Dauman and Mr. Dooley previously held executive posts at Viacom and are long-time business associates of Mr. Redstone, the company’s executive chairman. Most recently, Mr. Dauman and Mr. Dooley have been working as co-chairmen and CEOs of DND Capital Partners, a private-equity firm specializing in media and telecommunications investments.

Mr. Redstone said Viacom needs to be more aggressive in making digital acquisitions and foster closer relations with Wall Street than it did under Mr. Freston. Since Mr. Redstone divided the old Viacom into two companies earlier this year, the new Viacom’s stock has fallen about 15 percent.

“We were not moving ahead as entrepreneurially and as aggressively as we should,” Mr. Redstone said during a conference call with analysts shortly after the management changes were announced Tuesday morning.

Mr. Dauman’s and Mr. Dooley’s ties to investors make them attractive choices, Mr. Redstone said.

Viacom’s board believed “that the communication with Wall Street had been deficient,” he said on the conference call. “The stock price reflected that and suggested that maybe Wall Street lacked confidence in that management.”

Mr. Redstone’s comments reflect his focus on stock price as an indicator of success. When he split the company, Mr. Redstone billed Viacom as a fast-growth company and its new cousin, CBS Corp., as a slower-growth investment. Under CEO Les Moonves, CBS Corp.’s collection of television and radio broadcast assets, plus billboards, has increased in value 13 percent as Viacom’s share price slid.

Mr. Redstone, 84, also heralded the Wall Street track record that Viacom’s new management team established in their earlier stint at the company. When Mr. Dauman and Mr. Dooley were deputy chairmen of Viacom from 1996 to 2000, the company’s stock tripled in value, Mr. Redstone said.

That “certainly must have influenced the board,” he said.

Viacom stock today finished trading down $2.08 at $34.89, a 6 percent drop.

Jessica Reif Cohen, an analyst at Merrill Lynch, downgraded Viacom shares. The decision to replace Mr. Freston, 60, may indicate Viacom is struggling operationally and suggests the company may report weak results in coming quarters, she said.

Mr. Freston’s departure would likely lead to other defections from the company, Ms. Reif Cohen said in a bulletin Tuesday.

“The change is unexpected and is not likely to be well received by the Street or the creative community,” she wrote.

The executive shakeup also shows that Mr. Redstone, the controlling shareholder at CBS and Viacom, remains firmly in control, said Aryeh Bourkoff of USB Investment Research.

Replacing Mr. Freston hurt the stock because he had been “instrumental in building the company’s assets, brand and talent,” Mr. Bourkoff wrote in a report. Long term, the move may prove to be a positive for Viacom if the company becomes more financially disciplined and new management is better at leveraging its brands across digital formats, he said.

Mr. Redstone declined to criticize Mr. Freston for allowing Rupert Murdoch’s News Corp. to beat Viacom in the race to acquire MySpace.com, which has been cited as a source of friction between the two executives. Later in the call, however, he said that he expected Mr. Dauman to be “a highly aggressive and entrepreneurial executive who will let no opportunity pass and let no competitor ever beat us to the trophy.”

Mr. Dauman on the conference call said he expected Viacom to meet the earnings level it has been predicting. There will be a one-time charge that relates to a severance payment to Mr. Freston, he said.

Mr. Freston in 2004 earned salary of $4.2 million and $16 million in bonuses. That same year, Mr. Moonves earned a salary of $5.7 million and a bonus of $14 million, while Mr. Redstone got a $4.97 million salary and a $16.5 million bonus.

During the conference call, Mr. Dauman said he and Mr. Dooley will be taking “significantly lower case compensation than has been the practice at Viacom.”

“We have a package that incentivizes us if the stock does well in the long run,” Mr. Dauman said.

Mr. Freston’s departure comes a week after Mr. Redstone publicly announced the end of the company’s relationship with actor Tom Cruise. The move was widely seen as undercutting the authority of executives at Viacom and its Paramount Pictures unit.

Mr. Redstone said the situation with the movie star had nothing to do with the management changes.

“I have great respect for Tom Freston and want to personally thank him for his tremendous contributions to Viacom over the past 20 years,” Mr. Redstone said in a statement accompanying the announcement Tuesday morning. “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 didn’t offer his reasons for departing.

“I’ve spent over 26 years at Viacom, 18 of them with Sumner,” Mr. Freston said in a statement. “With my exceptional colleagues, we built a worldwide powerhouse of brands and businesses, literally from scratch. I leave many good friends knowing that they have an unmatched track record, a great plan going forward and incredible abilities to execute on it in this digital age.”