When Two's A Crowd

Eve

ry socialite and CEO in Manhattan knows not to invite Sumner Redstone and Mel Karmazin to the same party. So when the twin egos of media giant Viacom unexpectedly shared the stage during a dinner for investors last Thursday, they generated quite a buzz. Some who have bet heavily on the success of Viacom--whose properties include CBS, MTV and Paramount studios--took heart that the feuding titans made a public show of getting along. "Their message was simple," Bear Stearns stock analyst Raymond Katz wrote in a report on Friday. "Their partnership, built on a mutuality of self-interest and a similar business philosophy, is functioning well." Katz, whose firm hosted the dinner, said the two looked "relaxed and comfortable." Redstone and Karmazin wrote in a lovey-dovey joint statement that they are "looking forward to working together productively in the ensuing years."

But officials close to the two men whispered a different story. According to the New York Times, Redstone, 78, the CEO and chairman, told the company's board at a special meeting on Wednesday that he would not renew the contract of Karmazin, 57, Viacom's president and chief operating officer. Redstone, who owns 68% of Viacom's voting stock, generally gets what he wants. But Karmazin's contract runs through 2003, and he has been widely regarded as Redstone's successor.

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Therein lies the problem. Redstone is famous for ousting or outlasting would-be successors, including former Coca-Cola Television and HBO executive Frank Biondi. Redstone and Karmazin don't appear to disagree on any substantive matter; rather, Redstone told the board he dislikes Karmazin's aggressive style. And associates say they have seen the older man bristle at the attention Karmazin gets. "These are two strong-willed individuals," says Mark Greenberg, who manages the Invesco Leisure Fund. "Neither wants to concede to the other."

At last Wednesday's board meeting, Viacom directors instructed the two to resolve their differences. Viacom issued a statement on Karmazin's contract, saying that "Mr. Redstone and Mr. Karmazin do not plan to address the issue any sooner than the end of 2002."

Ousting Karmazin anytime soon would be no easy task. It would take 14 of 18 board votes; eight members come from cbs and are regarded as loyal to Karmazin. He also has won fans on Wall Street by boosting earnings at CBS and earlier at Infinity Broadcasting. "If Mel leaves, the shares will take a hit," says stock analyst Peter Mirsky of SG Cowen. So Redstone, with $10 billion tied up in Viacom stock, might not want to shake this tree too hard.