Sumner Redstone couldn’t have been more wrong. When CBS Corporation (CBS) and Viacom (VIAB) split in 2006, he suggested the age of the diversified media conglomerate was over. Dividing CBS and Viacom was expected to create more value. To say this split has turned in disappointing results is a vast understatement. With the two companies getting back together 13 years later, will the combination provide better returns to investors? In short, the new company looks so cheap, investors should finally get the big payoff they have been waiting for.
Breaking up and breaking shareholders' hearts
The timing couldn’t have been much worse for the CBS and Viacom split. In 2006, Netflix (NFLX) was still a DVD company. Walt Disney (DIS) was known for its theme parks and classic movies. The theory sounded good - CBS would represent television assets and Viacom would represent the film company.
By September 2006, Amazon.com (AMZN) introduced video on demand, and the next year, Netflix launched streaming video. In the following years, we’ve seen mergers to combine companies like Comcast (CMCSA) and NBCUniversal, and more recently, AT&T and Time Warner. The market obviously didn’t feel comfortable with the prospects of either Viacom or CBS, and the stock returns have not lived up to the billing of the split.
On Viacom’s first day of trading, the shares were at $41.59. By 2014, investors thought the company was headed in the right direction and the shares reached about $88. The company was in a fight with Google (GOOG, GOOGL) over shows appearing on YouTube and was looking for $1 billion in damages. However, this dispute ended with the two companies coming to an agreement without money changing hands. In addition, Viacom signed a deal with Sony (SNE) for its live and on-demand Internet-based
