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Redstone Keeps His Word To Replace Viacom Board

UPDATE: On Thursday, June 23, the judge overseeing the case about the Viacom directors being replaced by Sumner Redstone has ruled they can remain for now, according to CNBC.

It seems that Sumner Redstone is making good on his threat to rid the current members of Viacom’s (NYSE: VIAB) board of directors.

Now let’s see who he will choose to be on the board. I think that he will do well to get rid of the failing Paramount Pictures. And going further to recombine with CBS (NYSE: CBS) would be the icing on the cake.

Earlier this month, we wrote about the turmoil going on between Redstone, who is the controlling shareholder, and members of the board. Specifically, Redstone, and his daughter Shari, took issue with Viacom Chief Executive Philippe Dauman and board member George Abrams.

Shari. She’s thought to be pulling the strings, as opponents of the changes charge that the 93-year-old Sumner Redstone may be making such dramatic decisions because of a diminished mental capacity.
The lawsuit
Dauman and Abrams had vowed to sue Redstone if they were removed. Redstone owns roughly 80% of the company National Amazements, which gives him controlling voting stake in Viacom and CBS.

In addition to Paramount, Viacom operates BET, MTV, Comedy Central, Nickelodeon and VH1.

 · Change needed

Look no further than the company’s latest earnings report, which was released on Friday. They were for the second quarter of 2016. Quarterly revenues declined 3% to $3 billion. Media Networks revenues were $2.38 billion, a decline of 3%.

Domestic advertising revenues decreased 5%, as pricing increases were more than offset by softer ratings at some of its networks. International advertising revenues declined 1%.

Viacom’s stock traded on news that the board replacements. Also, RBC upgraded Viacom to sector perform from underperform. It also raised the price target on the share price to $45 from $34.

Guidance issued by the company for the third quarter indicates it will decline.
According to CNBC, Viacom’s Class B shares have performed well this year, trading nearly 8% higher. Still they are more than 33% lower over the past 12 months.
The future

Viacom is looking to Paramount’s release of Teenage Mutant Turtles: Out of the shadows and Star Trek to help it line its coffers. However, Teenage Mutant Turtles is having a tough time of it. The release of the Star Trek Beyond movie because of its strong following of “Trekkies.” It’s difficult to count on that to help Paramount financially.

Crying foul over their removal, and the negative consequences they perceive the changes will have on the company, Dauman and Abrams are vowing to fight to get their positions back. A hearing over the matter has been set for June 7 over the matter.

As I said in May, given that so much is up in the air for Viacom, I would not invest it in in the short-term. While I said a long-term play would be more appropriate to allow time, I don’t think so now. The stock is cheap, but it could be a value trap. Also, it could be a takeover target, but who would touch it now.

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