Sumner Redstone, the 92-year-old now former executive chairman at broadcasters CBS and Viacom, might have been spared the ignominy of a court appearance to evaluate his physical and mental capacity, but the battle for control at the Viacom part of his empire looks far from over.
Mr Redstone stepped down as executive chairman from both companies two weeks ago. CBS is in decent shape and the succession there satisfied investors. Viacom, owner of Paramount film studios and television channels including MTV, Comedy Central and VH1, is in very different shape – and, surprisingly to most observers chief executive Philippe Dauman easily won his bid to replace its ageing patriarch. The board voted 10-1 in his favour despite calls from Shari Redstone, Sumner’s daughter, and activist investor SpringOwl Asset Management to appoint an outsider.
On Tuesday Viacom reported disappointing fourth-quarter results, revealing a 10 per cent decline in profits and a 6 per cent fall in revenues. Any enthusiasm for the stock following Mr Redstone’s departure quickly evaporated, sending it down 21 per cent to a five-year low. Viacom hasn’t been hip with the kids since I was a kid, and even the announcement of a new partnership with tech unicorn Snapchat was greeted by the market with a resounding “meh”.
Mr Dauman came out fighting on the post-results conference call, saying “our outlook and the facts have been distorted and obscured by the naysayers, self-interested critics and publicity seekers”. He did not expand on the “facts” to which he was referring – that the company results have consistently disappointed the market over the past few years is not open to debate. Despite that particular fact, Mr Dauman has remained one of the best-paid executives in American broadcasting.
Not all of the news was awful, even if Mr Dauman chose to ignore the good news in favour of lashing out at his enemy list. The company has a fast-growing business in India and a strong flow of rights cash from Paramount’s film library, and the children’s network Nickelodeon has turned around admirably in the last two years.
SpringOwl had been actively seeking board changes at Viacom. Its reaction to Mr Dauman’s appointment and conference call performance was nothing short of blistering: “His [Mr Dauman’s] comments did nothing to comfort shareholders, analysts who cover the company or Viacom employees. Instead of being contrite, Dauman was supremely defiant. Instead of providing further details about exactly how the company would turn around its fortunes, he was purposely vague… This is no way to run a company.”
It really is no way to run a company. Mr Dauman appears to have a problem facing reality – a reality in which changing television technology is hammering Viacom’s broadcasting revenue and its brands are in dire need of resuscitation.
By refusing to appoint an independent executive chairman, the board at Viacom have been cowed into accepting an all-or-nothing strategy – turn things around or they will all need to fall on their swords. Not an easy feat to accomplish in a bear market.
It is unlikely that Sumner Redstone would have stood down had CBS and Viacom not faced serious pressure for him to do so. He was unwilling to accept reality, so perhaps it is not surprising that Mr Dauman appears to be cut from the same cloth.
Masters of the universe can’t call this market either
News that Goldman Sachs has closed out five of its six “trades of the year” less than six weeks into 2016 ought to set the schadenfreude coursing through the veins. No bank better symbolises the arrogance and self-importance of Wall Street, and to see it sheepishly withdraw from what were supposed to be its nap picks for the year is somewhat satisfying. Cold comfort, though: if Goldman Sachs is getting 80 per cent of its picks wrong, what chance everyone else?
Its picks for the year were suitably esoteric, aimed only at the most obscure and best-paying hedge fund managers. Even so, picking the dollar to strengthen against a basket of seemingly weaker currencies including the euro and yen seemed like a low-risk, obvious call.
Few people would have guessed that both currencies would instead hit multi-month highs against the dollar.
Goldman closed that one out at a 5 per cent loss, which might seem trivial. But when you consider that most of the bank’s currency clients are trading millions at a time, 1 per cent here and there adds up very fast in real money terms. Another currency pick, backing the Mexican peso and the Russian rouble against the South African rand and the Chilean peso, closed out last month at a loss of 6.6 per cent.
Three other picks – a bet on Italian bond yields relative to German ones, another backing US bond 10-year “break evens”, and a third picking large US banks to outperform the S&P 500 index – have also been closed out at losses. The bank has one pick left open and in the black, backing a basket of non-commodity export stocks against emerging market banks. Ouch.
None of these are trades that ordinary investors make. Perhaps they are esoteric by design – picking stocks is for mere amateurs, not Masters of the Universe. The perception is that the more complex and exclusive the trading advice, the more banks like Goldman can charge for their advice – and perception is everything.
Even so, the old adage to never confuse a bull market for brains has never been more painfully obvious. Of course, if picking the market were easy, we’d all be sitting on our private beach in the Caribbean.
However, although it is worth pointing out that even companies such as Goldman find life an awful lot harder in a bear market, I’ve always thought it slightly unfair to criticise anyone, even Wall Street banks, for not having a working crystal ball.
Sometimes the best advice is the most simple advice – if investors are nervous about the stock markets and their aspiration is to live to fight another day than to be proved right eventually, cash is the only real option.
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