One of Viacom’s more persistent critics among securities analysts suggests that the best course of action for the company would be to sell off assets with value but little cash flow and then take the company private.
Todd Juenger of Sanford C. Bernstein has held the view that Viacom’s cash flow will diminish regardless of the operating plans the company comes up with and has likened Viacom’s position as a traditional cable networks company serving young viewers to Eastman Kodak’s when the photo business transitioned from film to digital.
He argues that if a new company was aiming to entertain young viewers, it wouldn’t start cable networks and that Viacom couldn’t cut cost enough or move fast enough to be better off financially as a digital business.
Among the businesses Juenger thinks Viacom could sell are Paramount, Channel 5 in the U.K., its international networks and BET. He says the remaining core assets, including the Nickelodeon, MTV and Comedy Central cable networks could be taken private, allowing private equity holders to reap the cash-flow they generate without having to answer questions about re-investing in those brands.
“The bad news, however, is when we lay out our itemized list of sale-able assets and estimated liquidation values ($8.5 billion), we believe the private equity value of the remaining assets ($12 billion) is well below the public market enterprise value ($18bn). After the creditors were paid off, the equity value could be as little as half of the current public market cap,” Juenger said.
“The even worse news is, this entire reorganization exercise is purely theoretical. There seems almost no chance that the board or management is going to divert from the status quo. Which leaves us with our financial forecast, a dismal cycle of perpetual declines leading to ever-decreased equity value.”