Should Viacom Go Private And Escape The Wall St. Beauty Pageant?
By Joseph Weisenthal - Wed 18 Jun 2008 01:32 PM PST
In 2007, Viacom (NYSE: VIA) was just about the only big media firm not to see a decline in its shares. Since then the stock has joined its peers, falling from a 52-week high near $45 to below $33 today. The solution, says Pali Research analyst Rich Greenfield (sub req’d): take the company private. He says he argued the same thing two years ago, back when debt was cheap and plentiful, and that two years later the stock is down 2 percent. The argument (which is kind of theoretical, since the debt markets may not be so hospitable) is basically a financial one: under his analysis, a Redstone-backed group could pay $38.50 per share, saddle it up with $21 billion in debt and make a nice profit. Even at $49 per share, such a deal would be break-even.
Besides the financial argument, there’s another reason the company might be better off going private: it reduces the pressure on it to do something just for the sake of doing something. That was the reaction among some when CBS (NYSE: CBS) announced the CNET (NSDQ: CNET) buy. WSJ’s Evan Newmark summed up the problem, offering a completely fictional dialog between CEO Les Moonves and his board: “Ladies and Gentlemen, we’ve had a great run. We have a fabulous cash cow. It’s in the interests of our shareholders, to let the company run its natural course. Huge dividends, no deals, only organic growth. All in favor?” Such conversations rarely happen.
Viacom’s situation is a bit different than it’s corporate sibling, as its assets are better positioned for organic growth. And so far, CEO Philippe Dauman says the company is focused on organic growth and smaller “tuck-in” deals. But as the stock declines and the value of some of its brands continue to fade, the pressure to swallow something big will grow, if only to show that the future can be as sexy as the past.
Posted in: Companies, CBS, Viacom, VC+M&A, Mergers & Acquisitions
