Viacom's Mess

| About: Viacom Inc. (VIA)

Summary

Viacom's soap opera continues, with more nasty stuff still ahead.

It’s difficult to suggest sale of the shares, as a takeover or merger at a higher price, within a year or two, is a reasonable possibility.

But it’s also difficult to suggest buying the stock, as the timing of any potential merger or takeover is uncertain and valuation depends on interest rates and economic trends.

Muddle-through and frustration for both bulls and bears is the best that, for the moment, can be expected.

This Friday, it's undoubtedly an unhappy, tumultuous 93rd birthday for Viacom (NYSE:VIA) (NASDAQ:VIAB) controlling shareholder Sumner Redstone. His shares of CBS (NYSE:CBS) (NYSE:CBS.A) are doing fine, and there aren't any or many visible clouds at the eye network. But Viacom is an entirely different story.

Part of the problem is that Viacom is filled to the brim with litigious lawyers, starting from Mr. Redstone on down to his daughter and granddaughter, to recently dismissed trust members, and of course Mr. Dauman. Everyone here, it seems from the corporate history, has commonly had an appetite to sue everyone else, and that famously includes family members suing each other.

The most recent bone of contention is the idea - Mr. Dauman's, apparently - that a part of Paramount, the film studio arm, should be sold in order to raise capital and link this division to potentially higher growth enterprises and opportunities available elsewhere. Well, if capital were needed, why did Viacom over the last five years or so "waste" an estimated $15 billion in cash to buy back stock at prices averaging in the mid-$70s as compared to $43 now? Mr. Dauman, in my opinion, has functioned over this time much more as a caretaker than a visionary.

I happened to have a fairly close-up view of the 1994 battle that Mr. Redstone waged to buy Paramount for around $10 billion. And I cannot imagine that, even in failing health, Mr. Redstone would ever agree to relinquish any part of this asset. So, Mr. Dauman and the current board members are, in my opinion, in defiance of Mr. Redstone's long-held intentions and wishes. Sale of even part of Paramount is a dumb idea, not only for this reason, but also because it would likely interfere with and/or diminish the possible takeover valuation in any eventual sale or merger of all of Viacom. Either sell or don't sell the entire asset, but do not parse it out piecemeal. One can only imagine the legal complexities and costs that would arise and be incurred from trying to get an entrenched financial or Chinese minority partner untangled.

Mr. Dauman is also at risk in that in the earlier 2016 courtroom drama, he expressed the view that Mr. Redstone was entirely cogent and capable of deciding who should be in charge of his health-care needs. But in objecting to his dismissal from the board of trustees, Mr. Dauman in effect now claims the opposite; i.e., that Mr. Redstone's "decisions" are not independently arrived but are instead dictated and determined by daughter Shari.

Here are the fluid probabilities, of course always subject to change, as I now see them.

  • Nastiness continues as everyone continues to sue everyone else for a long time - 100%.
  • Mr. Dauman is forced out/resigns as CEO of Viacom - 95% (Don't cry for Argentina - despite the troublesome/erratic performance he was paid more than $1mm a week in fiscal 2015).
  • Daughter Shari prevails and ends up in full control of both Viacom and CBS - 75%.
  • Entire Viacom is sold or merged with another giant media company - 50%.
  • The shares continue to drift sideways over the next three months - 50%.
  • Viacom gets back on solid earnings track within a year - 40%.
  • All or part of Paramount is sold by the end of June - 0%.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.