Viacom Has Begun Talks To Sell Minority Stake In Paramount


Viacom shares jumped more than 5% before settling back to +2% after CEO Philippe Dauman announced at an investor conference that he has been “approached by several potential strategic investors in Paramount” and is “pursuing a transaction with a strategic minority investor.”

He’s engaged in “substantive discussions with a select group of strategic partners” and has signed up Paul Taubman’s PJT Partners as a financial adviser to help with the sale, he told the Jefferies Media & Communications Conference in New York.

A deal could be consummated by the end of June, he says. Cash would be used to reduce Viacom’s debt, including “a near-term maturity that we have.” It also could be used to pursue “operational and strategic opportunities that we might have and, of course, return of capital to our shareholders.”

Viacom would continue to control the studio.

“In this time of change and enormous opportunity in our industry, a partnership will bring significant benefit to Paramount and Viacom, both strategically and financially, provide new opportunities for Paramount’s employees and talent, and enhance long-term value for all Viacom shareholders,” Dauman says.

The talks follow the Viacom board’s recent decision to name Dauman the company’s Executive Chairman, as well as CEO, as dominant shareholder Sumner Redstone stepped back to become Chairman Emeritus.

That led some investors to wonder whether the company might be more open to change following a year when flagging TV ratings and ad sales helped to drive Viacom’s share price down by more than 45%.

Many investors, including No. 2 shareholder Mario Gabelli, called for the company to look at possible deals involving Paramount — including a sale of the studio.

The asset is probably worth about $4 billion, Bernstein Research’s Todd Juenger — one of Viacom’s sharpest critics — estimates. He says it should be valued as “purely a theatrical studio” since its TV production operation is still young.

But Stifel Research’s Benjamin Mogil says it might be worth “north of $10 billion.” He believes entities willing to buy a minority stake in Paramount would “likely be from China, given that country’s global box office ambitions and possibly as well as from India” — such as Reliance.

“Paramount has global distribution (in some markets through a joint venture, in others stand-alone) with already in-place home entertainment and pay-TV deals,” the analyst says. “As a result, we would view valuation more from the perspective of replacement value for such infrastructure for a new entrant” as opposed to simply valuing it by applying a standard industry multiple to its cash flow.

Dauman reminded investors today that the studio is increasing its film output with a heavy emphasis on franchises. It plans to release a Transformers movie each year from 2017 to 2019. In addition it will have sequels to Teenage Mutant Ninja Turtles, Mission: Impossible, and Star Trek with “other franchises to come.”

As a result, “there’s a lot of upside in Paramount,” he says.

Some analysts remain skeptical. CLSA Americas’ Vasily Karasyov says that Paramount is “on track to see another year of adjusted operating income decline and delivering only a third of the average profitability” it generated between 2010 and 2012.

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