Media | United States
Equity Value (Δ)
Source: Bloomberg end of day market data; not adjusted for dividends (February 15, 2018).
Viacom (“Viacom”) is a global media company that creates television programs, motion pictures, short-form video, apps, games, consumer products, social media and other entertainment content for audiences in more than 180 countries. The company’s media networks reach approximately 4.3 billion cumulative television subscribers worldwide.
WSD Capital Management announced its investment in Viacom on February 15, 2018. We believe investors are underestimating Viacom’s earnings power the next few years and ultimate asset value. On January 20, 2018, it was disclosed that Viacom CEO Bob Bakish and CBS Corp CEO Leslie Moonves have had an exploratory discussion about merging the two media companies after their split in 2006. National Amusements controls about 80 percent of the voting shares of both Viacom and CBS and is privately owned by the Redstone family.
Changing media consumption patterns and technology create general concerns about the cable business model has prompted renewed industry consolidation after AT&T Inc. announced its $109 billion takeover of Time Warner Inc. Since then the Walt Disney Co. agreed to acquire the majority of 21st Century Fox Inc.’s TV and film assets for $66 billion and Discovery Communications Inc. announced its merger with Scripps Networks Interactive Inc.
Viacom continues to have some of the most diverse TV audiences with MTV, BET, Comedy Central and Nickelodeon, even if the company has not realized that potential with mobile and streaming which could change with the acquisition of VidCon, the world’s largest conference for and about online video.
Viacom’s current market valuation presents an opportunity for investors to buy the company’s media networks business for below fair market value (valued at $36 a share) and purchase its Paramount studio business for free (valued at $10 a share). We expect that any potential merger is unlikely to generate a rich merger premium for Viacom shareholders.