CBS, Viacom And The Les Mess

Includes: CBS, VIA, VIAB
by: Harold L. Vogel, CFA

Except for New Yorker mag and its reporter, everyone ends up damaged.

Mr. Moonves, CBS, and Viacom will all see problems intensify.

Neither CBS or Viacom yet appear to be attractive investments.

Eventually, one or both with likely be broken apart or somehow merged, maybe with other partners.

There’s no other way to describe the well-publicized battles and developments in the Redstone-controlled CBS (NYSE:CBS) /Viacom (NASDAQ:VIAB) empire than as messy and ugly and not soon to be resolved.

No matter what the findings of the two investigative law firms hired by the CBS board, the reputation of the long-time highly effective leader of CBS, Mr. Moonves, has been largely tarnished beyond repair. If he hangs on for a while, it will be without the power, gravitas, and confidence that he has long enjoyed. A serious replacement is not readily apparent.

A merger between the two companies for, in my opinion, the misguided purposes of building “scale” (see SA, “Media Bidders, Beware the Winner’s Curse,” July 26, 2018) is now more probable, but it has come at a high cost to the Redstones and other CBS shareholders. CBS shares have fallen from the high to low $50s, and the company might be rudderless for quite a while. In more tranquil times, this might not be such a big problem. But with big phone/Time Warner, Disney/Fox, and other such deals, the industry’s tectonic plates are shifting rapidly. That makes this a particularly inopportune time to go rudderless.

On the Viacom side, operating results appear to be improving, but not up to the point that the company has truly overcome the major challenges from cable industry subscriber defections and rising program acquisition and development costs courtesy of Netflix, Amazon, Hulu, Apple, and all the other new media players.

Thus, merging CBS and Viacom doesn’t necessarily make things better and might make things worse as it would require considerable time and effort to sort out who manages what and where, and who is actually involved in guiding long term growth and merger strategies. At both companies, lots of executive management upheaval lies directly ahead with resumes and long knives already being sharpened, as they always are in such corporate situations. The bad blood generated in the legal skirmishes of earlier this year will not be quickly dissolved. And a combined CBS/VIA is thus likely at the least to be a management headache and possibly a nightmare.

At some stage, and from lower share prices, both CBS and VIA in whole or in pieces, will likely become attractive acquisition targets to some bigger-wallets that might include Verizon, Amazon, or Apple.

But not now and not yet.

As such, there is little reason to think that at current prices the shares of CBS or VIA have fully discounted the difficulties and become desirable investments.

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.