Can Redstone Really Take Back Seat at Viacom?

IF the proposed marriage of Viacom Inc. and CBS Corp. really was made in heaven, why do Sumner Redstone and Mel Karmazin need a prenuptial agreement?

The Viacom and CBS bosses know their media assets are a good fit, but they have clearly worried about whether the two of them would be able to work together. Their pre-merger arrangement is an attempt to smooth the way for the $35 billion merger, expected to close next year.

Redstone, 76, is set to continue as Viacom chairman, chief executive and controlling shareholder, but he has agreed to cede operating control of the merged companies to CBS Chief Executive Karmazin, 56, until the end of 2003.

It's impossible to predict whether this will work.

"I won't get in his way, but I love what I'm doing. I love my work," Redstone said at his New York headquarters.

This is certainly a novel arrangement. Karmazin will only be required to "consult" with Redstone on major decisions. Karmazin's contract even has a "non-disparagement clause." He and senior Viacom executives are forbidden to bad-mouth each other while Karmazin is in office or for a year after.

Karmazin has a reputation as a tough operator. Within two years of selling his radio company to Westinghouse Electric Corp. (now CBS), he gained control of other divisions and took the place of the chief executive.

Before joining Viacom, Karmazin wanted the decks cleared -- and Redstone agreed to oust his two top executives. Redstone's move underscored the intensity of his ambition for Viacom. Redstone wants his company to win at every level, and in Karmazin, he found an equally driven executive.

Still, Redstone bristles at the presumption of investors and analysts that Karmazin is his long-term successor, even though the CBS boss is guaranteed the job if Redstone is incapacitated before 2004. Mortality is the issue here, but Redstone shows little sign of slowing, much less retiring.

Karmazin, for his part, insists that he is not worried about his own future. "I've been around for a long time, (been) very successful and made a lot of money," he says. "I don't make that money by worrying about what's in my contract. The only time you look at a prenuptial agreement is when you're getting divorced."

Redstone is dealing with change in his personal life as well as at the office. One week after the merger was announced in September, his wife of 52 years sued for divorce. The New York Post published a photo of Redstone strolling hand-in-hand with an attractive blonde on a Paris street. Redstone appears vexed by the tabloid stories.

So, these are unsettling times for the Viacom chairman, who by rights should be on top of his world. He is the richest American media executive, according to Forbes magazine, which ranks his estimated $9.4 billion fortune larger than that of Ted Turner or Rupert Murdoch.

Redstone's most public successes have come late in life, beginning with his takeover battle for Viacom 12 years ago. Until then, he was known, if at all, as a New England theater operator who made shrewd investments. In 1994, Redstone added Paramount Communications Inc. and video retailer Blockbuster Entertainment Corp. Now CBS is in his grasp. That acquisition, expected to be approved next year, would boost the combined companies' revenue in 2000 to $24 billion from $19 billion in 1998, analysts estimate.

The CBS deal won't dilute Redstone's voting control of 67 percent, which is vital. "As you know, I'm a control freak," he says.

Nothing has given Redstone greater joy than proving to the world that he could outsmart, out-negotiate and even outlast his business rivals or peers.

All of which makes his deal with Karmazin more amazing: Once the CBS chief comes aboard, no one else will report to Redstone. Karmazin has the right to hire the general counsel, chief financial officer and controller. With the departure of the two deputy chairmen, Thomas E. Dooley and Philippe P. Dauman, who were at Redstone's beck and call, the Viacom chairman may find himself isolated.

Wall Street analysts and investors are betting that Redstone and Karmazin will swallow any differences for love of the new company and its stock price. Under Karmazin, the price of CBS shares soared 80 percent in the 12 months before the Viacom merger announcement.

"It's in both their interests to make it work, and they're both smart enough to make it work," says Loews Corp. Co-Chairman Laurence A. Tisch, who sold CBS to Westinghouse in 1995.

There are skeptics who doubt that either executive can accept an equal. Karmazin's popularity with investors may become a two-edged sword, if Redstone finds his own stature reduced.

Without naming names, Redstone insists that he has "five people" who could run Viacom. "I've said I like Mel, and I hope Mel will be here forever," he says. "My decision to buy CBS was not a decision on succession."

While under contract, Karmazin won't be easily fired. The vote of 14 of 18 Viacom directors would be required. When the merger takes place, CBS directors will fill eight of the 18 seats.

Already, the two men have sent different signals to Wall Street on Viacom's long-planned split-off of Blockbuster. Karmazin told big investors that he was rethinking Viacom's strategy, but a day after his remarks were reported in the Wall Street Journal, Redstone told analysts that he still intends to complete the transaction next year, unless the price is unacceptably low.

It seems clear that Redstone and Karmazin haven't fully sorted out their roles. "I would hope Sumner stays at Viacom long after he's 100 years old and continues to play a very active role in helping build the company," says the CBS chief executive. When pressed for details, Karmazin says with sarcasm that Redstone will choose the music for their radio stations.

Karmazin also says he has "not thought about" moving his office from CBS's headquarters to Viacom some eight blocks away. But simple logistics were on Redstone's mind at the press conference announcing the merger, when he said, "I certainly hope you won't disagree that your office is next to mine." Karmazin replied, "We'll work it out, Sumner."

Karmazin operated from an office outside CBS headquarters until he wrested control from former CBS Chairman Michael H. Jordan last year. Karmazin barely masked his disdain for Jordan after he sold Infinity Broadcasting to Westinghouse in 1996, becoming the biggest shareholder. But he may behave quite differently with Redstone, whom he appears to respect. And there's the obvious assumption Redstone won't live forever.

He would if he could. "Dying is not a good thing," he says, remarking upon the recent deaths of Sony Corp. co-founder Akio Morita at 78 and former Paramount Chairman Martin Davis at 72. Redstone had a brush with death in 1979, when he was badly burned in a Boston hotel fire. He recovered after a series of operations and still plays tennis, with the racket strapped to his scarred hand. Redstone is careful about his diet and exercise. His parents lived into their 80s.

Redstone has often said that Viacom should be run by "professional managers" but that his heirs should have a role in the company if they want it. "My desire is that the company go on in the hands of my children and my grandchildren, with my son and daughter being treated exactly equally," Redstone says.

Shari Redstone, 45, and Brent Redstone, 49, both have seats on the Viacom board. Shari Redstone was drawn into the family business during Viacom's battle to acquire Paramount. She expresses no desire to run Viacom. Brent has a corporate and securities law practice in Colorado.

Meanwhile, Redstone has agreed with his wife to keep their divorce proceedings confidential. "I'm not going to get into the divorce at all, other than the statement we made: There's nothing in that divorce proceeding that in any way affects the ownership, the management or the control of Viacom. Got it?" he says.

Phyllis Redstone sued previously for divorce in 1984 and again in 1993. He sued her once in 1986. Each case was dismissed.

Although a divorce settlement could slash his net worth, Redstone appears uninterested in the trappings of wealth. "I never had a lot of liquid money. I didn't even get paid a salary here. We always plowed back every dollar we made."

Karmazin, who is divorced, can match Redstone's zeal for work. "We are both driven," says Redstone. "Viacom was doing great without CBS, and he was doing the same thing. Together we'll do it better. We have too much in common."

No kidding? Will they get along with each other and outwit their competitors? Or will they turn on each other? You could scalp tickets to watch the show at the Viacom corporate suite -- to see how or when Karmazin moves into an office there.