In January 2006, Viacom split off CBS Corp. in an effort to simplify its businesses and make the company easier to value. Redstone's example has appealed to Barry Diller, John Malone and other media moguls who have streamlined.
At the time of the split, Viacom stock traded in the $40s. In July 2006, with the shares at $33.38, Greenfield made his initial plea for Redstone to privatize the company. On Wednesday, with the stock opening around $32.50, the analyst renewed the call.
"While Sumner Redstone clearly likes the glamour of running a public company, the public markets are not giving him and his management team proper value for Viacom's assets; in turn, Mr. Redstone should take matters into his own hands to create value for himself and public shareholders," Greenfield wrote. "Take Viacom private or at least dramatically increase leverage."
Redstone could pay $38.50, under the analyst's plan, valuing Viacom's equity at $24.4 billion. With $8.1 billion or so in net debt, the total price tag would come to about $32.5 billion.
The hang-up? The buyout would require Redstone to borrow more than $21 billion, no easy task in the current credit markets. Even with the added leverage, Greenfield suggest that the post-buyout company would produce $600 million in free cash flow. - Chris Nolter
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Comments
I can see the merits of this thesis, but then, how will Viacom expand and grow? Doesn't it need a stock currency for value-adding acquisitions?