Viacom Inc. sealed a deal to keep president and chief operating officer Mel Karmazin on board for another three years, removing a year-long distraction for the media giant and allowing it to focus on possible cable-network acquisitions.
Karmazin's employment contract was set to expire this year. His new deal, effective May 5, keeps him in place at least until May 2006.
Karmazin yielded on what appeared to be the main obstacle between himself and Viacom chairman and CEO Sumner Redstone — a provision that a super-majority of Viacom's board of directors would have to agree to oust the COO.
Now, Viacom can pursue acquisitions with renewed vigor. One company on Viacom's radar — Vivendi Universal Entertainment S.A. — may have just become easier to acquire.
Just one day before Viacom announced Karmazin's new contract, Vivendi Universal Entertainment co-CEO Barry Diller announced his resignation.
Diller, who is also the chairman of USA Interactive, said his decision to step down from VUE was spurred by the possibility that the assets would be sold. Diller said that as a minority shareholder — he personally owns a 1.5 percent stake in VUE, while USAI holds 5.5 percent — it was a conflict of interest for him to stay on board.
"The position I was in was alright when all of our interests are commonly aligned," Diller said on a conference call to discuss USAI's $3.3 billion buyout of Expedia Inc. interests. "But in a situation where Vivendi has said it is looking at its options — selling pieces, parts or all of the assets as speculated about — my role as CEO is inappropriate."
Jean-Réné Fourtou, chairman and CEO of VUE's parent, Vivendi Universal S.A., will take over the entertainment unit.
Vivendi has been fielding interest for all or parts of VUE from several different parties for months. Potential suitors include Liberty Media Corp. — which was expected to make a bid with Diller — Viacom, General Electric Corp.'s NBC television unit and Metro-Goldwyn Mayer Inc.
In November, Texas oil tycoon Marvin Davis bid $20 billion for VUE, an offer Vivendi is still evaluating.
Diller's departure does not signal an immediate sale, but Sanford Bernstein & Co. media analyst Tom Wolzien said it would be easier now.
"That [Diller's involvement] was always a mess for anything that Vivendi wanted to do with it," Wolzien said. "[Diller's resignation] cleans it up. I suppose there is a possibility Vivendi could wind up selling [VUE] to Marvin Davis and Viacom buys the cable assets from Marvin Davis. With Diller out of the way, in some ways it simplifies it."
According to published reports, Redstone had informal meetings with Fourtou about VUE, mainly concerning cable networks USA Networks, Sci Fi Channel and Trio.
Karmazin, too, has expressed a desire to own Sci Fi.
VUE is not the only programming target on Viacom's radar screen. The media giant has also been said to be interested in acquiring the half of Comedy Central owned by AOL Time Warner Inc. Viacom owns the other half.
Karmazin and Redstone have been at odds regarding the COO's employment contract for more than a year. Redstone has expressed in several published reports his displeasure with having to give up a substantial amount of power to complete the Viacom-CBS merger in 2000.
The new agreement restores power to Redstone: He has full control over policy and strategy issues and also can veto Karmazin's decisions. But Karmazin gains a quick way out if he doesn't like the way things are going. Karmazin can sever the contract if he disagrees with the chairman's veto decision and makes a "bona fide objection" to the board.
Redstone also can change the size of Viacom's board of directors. Currently at 18 members, Redstone has said he would like to trim its ranks to 15.