Sell-Off Speculation Swirls Around CBS

Nov 30, 2008  •  Post A Comment

Pity poor CBS Corp. Investors are speculating that embattled executive chairman and controlling shareholder Sumner Redstone may be forced to sell the broadcast giant to pay off $1.6 billion in loans owed by his holding company, National Amusements.
Analysts say there would be plenty of interest in sister company Viacom, with its constellation of cable networks. But they say nobody would want CBS, even at bargain prices.
“There would be strategic buyers for Viacom,” said Alan Gould, senior media analyst at Natixis Bleichroeder. “I’m not as sure there would be a strategic buyer for CBS.”
In addition, the brutal credit market would make it all but impossible for a private equity firm to conduct a leveraged buyout.
“Generally speaking, you’re limited right now in terms of how a transaction can be executed, given capital market issues,” said Scott Singer, a managing director at BMO Capital Markets. “And the same goes for sales of individual assets within companies.”
The biggest drawback for CBS is that it has exactly the wrong assets for the current market. Though the network is doing well in prime time, the company relies on advertising for more than 70% of its revenue, making it particularly vulnerable to the advertising recession.
Its local television and radio stations also face erosion in ad revenue as marketers spread their investments across a fragmenting media landscape.
Since the separation from Viacom three years ago, CBS has only the Showtime network as a significant cable property.
“Cable network ratings have been holding up much better than broadcast, and cable has that dual revenue stream [from subscriber fees],” Mr. Gould added.
If push does come to shove and Mr. Redstone is forced to sell, Mr. Gould sees a block trade taking place of the mogul’s more than 70 million shares, which would amount to a fire sale. The company most likely would end up in the hands of institutional investors, and would continue operating as it had before.
Mr. Redstone recently issued a statement saying that talks with National Amusements’ banks and noteholders were “proceeding in a smooth and constructive manner” and that the holding company “has no intention of selling any stock of either Viacom or CBS.”
Mr. Redstone sparked speculation about the future of Viacom and CBS last month when he sold off holdings in both companies worth $233 million after their plummeting share prices put him in breach of his loan covenants.
He has a deadline of Dec. 19 to structure a new arrangement with his borrowers.


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