Wall Street Reacts Negatively to Philippe Dauman Being Named Chairman of Viacom

In midday trading, Viacom stock was flat, and investors were wondering why the company didn't choose an independent chairman with less baggage.

While Viacom board members were huddling to choose a new executive chairman to replace the ailing Sumner Redstone, the beaten-down shares of the media conglomerate were rallying 5 percent. But the moment it was announced that CEO Philippe Dauman was replacing Redstone, the gains were wiped out.

In midday trading on Thursday, Viacom stock was flat, and investors and many analysts were left wondering why the company behind Paramount Pictures, MTV and Comedy Central didn't choose an independent chairman with less baggage. Viacom's track record under Dauman in the past two years, after all, includes a stock that has tanked 41 percent.

The stock's movement appears more dramatic when compared with after-hours trading on Wednesday, when many on Wall Street were presuming a more dramatic change than simply elevating Dauman into Redstone's role. After Wednesday's closing bell, Viacom shares rose an impressive 9 percent.

Vice chairman Shari Redstone, in fact, signaled that Dauman wasn't her choice when she said Wednesday that no trustee of the family trust that her father set up should be chairman, and Dauman is, indeed, a trustee.

"Sumner's resignation wasn't a surprise, but the choice of Mr. Dauman clearly surprised investors," said Wells Fargo analyst Marci Ryvicker. "His elevation to executive chairman likely means there will not be a change in control. This is the most likely cause for the stock's pullback from just over $47 at the open, down to the current $44.50."

The most vocal opponents of Dauman are the activist managers at SpringOwl Asset Management, and their response to Viacom elevating the CEO was quick and harsh on Thursday.

"We are disappointed with the company's decision to appoint Philippe Dauman as executive chairman," said SpringOwl. "It raises questions about the board, corporate governance and fiduciary duties. As evidenced by the negative reversal in the stock price, the market agrees with the position of both SpringOwl and Shari Redstone that someone other than Philippe Dauman should be the chairman."

Matthew Harrigan of Wunderlich Securities called Dauman's appointment to executive chairman a "non-event as far as strategic activity" for Viacom. "The stock is too cheap — cheapest in the S&P 500, arguably," said Harrigan.

On Wednesday after the closing bell, CBS announced that CEO Les Moonves had been made executive chairman, replacing Sumner Redstone, and that stock rose 4 percent after the closing bell. In midday trading Thursday, CBS shares were up less than 2 percent.

In a research note late Wednesday, Harrigan said about calls for major personnel changes: "Redstone has not been involved in day-to-day management [at Viacom], and although investors have high regard for Moonves' creative/programming flair, behavioral issues for millennials favoring short-form programming (YouTube, Vice, etc.) would not be resolved with an executive change."

Email: Paul.Bond@THR.com