Wall Street Sees No ‘Game Changer’ in Viacom Plan to Sell Minority Stake in Paramount

Analysts question how far CEO Philippe Dauman’s plan will go to help the beleaguered entertainment company

Last Updated: February 24, 2016 @ 6:17 PM

News of Viacom’s plan to sell a minority stake in Paramount Pictures has left numerous Wall Street analysts underwhelmed, with several calling the plan a step in the right direction but some asking for more dramatic measures.

“We do not view the sale of a minority position in the Paramount studio as much of a prospective game changer,” wrote Wunderlich Securities in a memo to investors.

The firm called the potential sale of only a minority stake in the studio, which CEO Philippe Dauman hopes to complete by mid-year, “not that appealing to most prospective U.S. media company investors.” A deal might hold more appeal to foreign investors and over-the-top players like Amazon, Wunderlich concluded.

Interested parties for the prospective sale include previously reported companies like Chinese giant Alibaba, Amazon and Lionsgate Entertainment, among others.

“While we view this announcement clearly as a step in the right direction for Viacom, we still would prefer an outright sale of the studio or a merger to immediately monetize this asset,” said MoffetNathanson in its own take. 

FBR & Co., in a note to their clients, said “a sale of a minority stake in its studio as positive for the equity. A sale is likely to affirm, and potentially substantially step up, studio value.”

“Given that Viacom remains one of the cheapest stocks in the S&P 500, there are many paths to unlocking value here — including disposal of the entire company,” it concluded.

Wells Fargo Equities took a more optimistic turn, citing shareholder dividends and much-needed growth on Paramount’s production slate as a result of the sale.

“Proceeds from the transaction will be used to reduce debt (including a near-term maturity), return capital to shareholders, and for strategic initiatives (including ramping up film and TV production at Paramount),” said Wells Fargo senior analyst Marci Ryvicker.

Investment bank UBS, in a cheeky memo titled “Mission Not Impossible,” posed that instead of urging for a flat-out sale of the studio and its assets, “a minority sale could certainly highlight the latent value of the studio and show management is prepared to take significant steps to shore up Viacom’s balance sheet and stock performance.”

The sale is Dauman’s first major play in his new position as chairman. He is also chief executive of the company, which is beleaguered by challenged ratings at its cable networks and weak box office performance of its film slate.

The company’s stock has been among the worst performing in its class in the last year, as investors question its future while audiences migrate to online video and households scale back pay-TV subscriptions.

Viacom shares jumped on the news. Class B shares, which were down 3 percent before the news, spiked to trade as much as 7 percent higher at $39.45, before paring back the gains to trade up about 3.6 percent. The stock has tumbled about 46 percent in the last year.