Viacom should recombine with CBS, sell Paramount, analysts say

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With Viacom CEO Philippe Dauman officially out, analysts are renewing calls for Viacom and CBS to recombine and for Viacom to sell off the struggling Paramount.

MoffettNathanson reiterated its belief that the separation of Viacom and CBS was a “major mistake” for National Amusements.

“It was an illogical idea that was made worse by poor execution and the changing dynamics of the media ecosystem,” wrote MoffettNathanson in a blog post. “The right fix for National Amusements is to combine Viacom and CBS in stock-for-stock merger which creates massive cost synergies and puts a real programmer in charge of the business. However, CBS management has long dismissed the value this brings to their strategy and will need to be re-incentivized to do this.”

As Gamco’s Mario Gabelli told the New York Post, that incentive could come in the form of voting control granted to CBS CEO Les Moonves.

BTIG analyst Rich Greenfield said that bringing Viacom under the leadership of Moonves could help speed a turnaround for the struggling programmer.

"Creative talent loves Les Moonves, something which Viacom has sorely lacked for years under Dauman. We believe an array of media executives would flock to Viacom for the opportunity to rebuild its cable network and film divisions under Moonves, with creative talent sure to follow," wrote Greenfield in a research note. "We believe Moonves would not only improve the Viacom culture and bring back creatives (talent), but he would convince investors his strategic plan will succeed. Investors have faith in Moonves, having witnessed his remarkable run at CBS, combining a culture that breeds creativity with a continuous stream of financial engineering to drive shareholder returns."

Besides advocating for a CBS reunion, analysts have also urged Sumner Redstone’s National Amusements to consider a sale of some or all of Paramount.

"Despite Mr. Redstone's supposed desire to retain 100% control of Paramount, if the board plans to keep Viacom as an independent company, we believe the Paramount transaction makes complete sense and is in fact necessary to de-lever the company and provide capital to invest in the businesses," wrote Brean Capital analyst Alan Gould, adding that a 49 percent stake could be worth roughly $4 billion after tax.

MoffettNathanson pointed out that Paramount’s 2016 profits dropped by nearly $500 million and said incoming interim CEO Tom Dooley would be smart to consider a sale.

“… The best Tom Dooley can do is sell 100% of Paramount to the highest bidder. We are shocked that the Board or the Redstone family doesn’t see the obvious need to deliver Viacom cash ahead of its looming debt refinancing cycle,” wrote MoffettNathanson. “Furthermore, as Hollywood has become more and more of a global, tentpole business, Paramount doesn't have the franchises to compete with Disney, Universal or Warner Bros. As such, Viacom needs to sell its studio now to either a strategic buyer who can take out massive costs or find some “easy” money which always seems to be available.”

Greenfield agreed that a sale of Paramount was wise but doubted that National Amusements would want to explore that option outside of a sale of Viacom as a whole, something which BTIG now believes is possible.

“What better time than right now for a company to make a run at Viacom.  Viacom’s enterprise value is only $27 billion. We believe at least one company (Wanda) was very interested in buying all of Paramount for at least $10 billion. While Dauman and team only wanted to sell 49% of Paramount, Wanda wanted it all. If Wanda or others really want Paramount, they should seriously consider buying all of Viacom and then look to sell off what they no longer want,” wrote Greenfield. “If they wait, it may become far more difficult to obtain Paramount. Not to mention, if Viacom is able to improve its operations, an acquisition of all or part of the company could be far more costly than at today’s levels.”

For more:
- read this New York Post story
- read this SNL Kagan post

Related articles:
Viacom CEO Dauman departs with $72M severance package