Wall Street to Sumner Redstone: Please Sell Your Viacom, CBS Shares and Get It Over With
by Peter Kafka
Posted on November 24, 2008 at 11:23 AM PT
Like most of Wall Street, Pali Research’s Rich Greenfield is sure that Sumner Redstone will have to sell big blocks of CBS and Viacom shares in order to resolve a looming debt dilemma–even though that will beat down the price of the battered stocks even more.
Unlike most of Wall Street, though, Greenfield is sure that Viacom (VIA), at least, is a media business that’s well-positioned to survive the econalypse.
And his thesis makes sense: A big chunk of the cable company’s revenue is guaranteed, no matter what happens to ad rates, because it comes directly from cable operators, who pay Viacom a fee for each one of their subscribers. So unless millions of people stop getting basic cable (not going to happen), that’s going to remain a reliable source.
Add in the fact that the company’s Nickolodeon brand remains dominant, even if other franchises like MTV are showing their age, and the company should be okay for years to come, Greenfield argues.
The problem: It’s become increasingly clear that Redstone is going to have to unload big blocks of his holdings in CBS and/or Viacom, a move he insists he won’t do. But there doesn’t seem to be any alternative. Redstone’s National Amusements holding company has $1.6 billion in debt, $800 million of which comes due next month. Some of the CBS and Viacom holdings will have to go, and they should go sooner than later, Greenfield says in a note today:
While a block trade by the Chairman and Founder cannot be looked at as a positive, we believe investors are already assuming it will happen. We would simply like to see Redstone and NAI get the trade out of the way, so that investors can focus on the compelling value offered by Viacom’s stock price. With NAI in breach there is no timetable for a remedy (in discussions with its lenders), which we believe makes it critical for NAI to at least explain to investors what its current asset and debt situation is.”
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