Viacom's (VIAB) stock is lower today because of a new report out from Deutsche Bank that suggests a recombination with CBS (CBS) is unlikely unless Viacom accepts a "take-under" at a price lower than the current market price.
For Viacom shareholders, the notion of a take-under is offensive. If Viacom had competent management and saw its US and international cable assets fairly valued, as well as Paramount valued at $10 billion (as the company management implied it would be a few weeks ago), I have previously argued that this is a stock that should be worth $70 per share and not $43 per share.
If CBS wants to pay a premium closer to that $70 number for Viacom, that's great. If not, Viacom shareholders are likely to want to see a new CEO named so that the company can focus on its turnaround as an independent company.
The Deutsche Bank report explains how, even though National Amusements (NAI) controls both Viacom and CBS, there will be a number of steps required to recombine the companies that happen separately from NAI.
For example, CBS would likely set up a committee of independent directors to study buying Viacom. If they came back and recommended a purchase of the company at a price they deemed to be fair and negotiated with Viacom to sell, the matter would go to a vote of all CBS shareholders. Delaware law encourages that a "majority of the minority" shareholders also vote in favor of any large transaction and not just NAI.
Deutsche Bank argues that such a favorable vote by CBS shareholders is not a slam dunk. In the different scenarios they run through, Deutsche Bank argues that the most attractive option for CBS shareholders could be a take-under of Viacom at a price less than the current market value.
Of course, this wouldn't be attractive to Viacom's minority shareholders.
I have previously argued that, if Viacom's US cable assets were run by competent management similar to others in their peer group, along with full value being realized for their International cable assets as well as Paramount, Viacom's shares could be worth north of $70 per share.
Will many minority Viacom shareholders be happy with a take-under by CBS CEO Leslie Moonves? It's unlikely, even though shareholders greatly respect Moonves' management abilities. Viacom will need its own independent committee to study any bid and will have to put any transaction to a vote where it will also look to achieve a "majority of the minority" shareholders.
Therefore, it does make sense that there have been rumors in the last few days that NAI has been chatting with investment banks about whether or not to sell the Paramount stake, chatting with Jack Ma, as well as considering non-Moonves replacements to be the next Viacom CEO.
One name that has been mentioned a few times as a possible next Viacom CEO is Jeffrey Katzenberg. He just sold DreamWorks Animation to Comcast (CMCSA).
It also makes sense that NAI is moving ahead with a partial revamp of the Viacom board.
Interests of all CBS and Viacom shareholders must be served here and NAI appears to be aware of that and respecting that in their actions to date.
If CBS and Viacom can't see a path forward where both sides get fair value, then the best step for all would be a new CEO leading a still independent Viacom to best recognize the inherent value in its assets.