Viacom’s share price has gotten a bit of a boost over the past week or so, rising by about 10% from its lows (VIAB). Unfortunately for the movie and TV company, that means it is still more than 50% lower than it was a year ago. Some investors and analysts believe the only way out is for Viacom to sell some of its assets and/or take itself private.
Pressure has been building on the company for the past several months in part because of the decline of the stock. At least some of that decline has been a result of uncertainty surrounding the fate of 92-year-old billionaire Sumner Redstone, who controls about 80% of the voting shares in the company and is reportedly in poor health.
Some of that uncertainty was removed earlier this month when CEO Philippe Dauman was given the additional title of chairman of the board, replacing Redstone. But a number of investors, including activist hedge fund SpringOwl, saw this as a step backward due to their concerns about Dauman’s abilities as chief executive (as well as his substantial compensation package).
Those concerns were given even more fuel at the same time the Dauman news broke when it became clear that Sumner Redstone’s daughter Shari—who controls 20% of the votes and is vice chairman of the Viacom board—also opposed his appointment.
Activist investor Mario Gabelli, whose funds are the single largest shareholder in Viacom apart from the Redstone family, has argued for some time that Viacom should sell some of its assets. He has suggested selling a stake in the Paramount movie studio to Chinese conglomerate Alibaba, something Gabelli said could provide enough revenue for the company to invest in some new TV channels and other content.
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Others are recommending that Viacom sell Paramount altogether. The studio, which Redstone acquired in 1994 for close to $10 billion, is now estimated to be worth less than half that amount, in part because of a string of lackluster films.
Paramount’s performance shows that it is “not important to keep,” Danny Leibowitz of hedge fund Act II Partners told The Hollywood Reporter recently. “It’s unrelated to the rest of the company, other than maybe some TV production,” Leibowitz said.
Others, however, don’t believe that selling Paramount to raise cash is going to help Viacom’s central problem.
“People are asking Viacom to sell Paramount because they think the cable networks business is falling apart, but raising a little more cash does nothing to change that,” Doug Creutz of Cowen and Co. told THR. Todd Juenger of Sanford C. Bernstein said in a recent note that “the old business of serving kids/teens with linear TV networks is doomed,” and that Viacom is unlikely to win the digital version of those markets.
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For Juenger, one solution is for Viacom to sell off some of its more marketable assets, including Paramount and BET, and then take the remainder of the company private. The problem, he says, is that there would still be a massive value gap:
“When we lay out our itemized list of sale-able assets and estimated liquidation values ($8.5 billion), we believe the private equity value of the remaining assets ($12 billion) is well below the public market enterprise value ($18bn),” Juenger said in a note. “After the creditors were paid off, the equity value could be as little as half of the current public market cap.” So that doesn’t look like a great exit for Viacom either.
