Looking at the reality show taking place in the boardroom at Viacom and Sumner Redstone’s National Amusements, analyst Tom Eagan of Telsey Advisory Group says he expects changes in Viacom’s board, which could lead to CEO Philippe Dauman being replaced.
Dauman is battling Redstone and his daughter Shari Redstone for control of a media empire including Viacom and CBS worth $40 billion.
“While Viacom’s recent results were disappointing, we believe the stock is oversold,” said Eagan, who rated Viacom stock as Outperform.
“Should [Sumner Redstone’s] Trust or R[edstone’s holding company, National Amusements] be successful in replacing CEO Dauman, we believe the Street would reward Viacom with a multiple closer in-line with its peers.” Eagan said in a research report.
Who might replace Dauman? Egan suggests former 21st Century Fox COO Chase Carey and former Disney COO Tom Staggs.
Viacom stock has been hovering near lows because of declining ratings and ad revenue.
Dauman in April said Viacom would sell a stake in Paramount Pictures. Sumner Redstone has said he opposes the sale.
Eagan says the stake sale is still likely.
“While Mr. Redstone has stated his opposition to the sale of a stake in Paramount, he might not be able to halt it. The Board has approved the stake sale and CEO Phillippe Dauman has indicated that the sale could close by end-of-June,” Eagan said. “We don't believe that Mr. Redstone (or the Trust) is in a position to replace enough Board members to reverse this decision by June.”
Eagan estimates the sale would generate more than $1B in proceeds enabling Viacom to lower its debt leverage to its 2.75x target by 4Q16 (September 2016). The company would be able to both invest in the business and resume share repurchases.
Eagan also says that if Redstone ousts Dauman, a merger with CBS is unlikely.
He expects status quo at CBS, which is prospering under CEO Les Moonves.