On Wednesday’s Fast Money on CNBC we had Tom Freston, former CEO of Viacom, to discuss the current board room battle between Sumner Redstone and its board. In case you haven’t been following the drama, Redstone owns a nearly 83% controlling stake of the company and the board thinks at 93 years old he is not fit to be pulling the strings of the media conglomerate anymore. The interview was quite interesting. Freston was last at the helm of VIA when it still dominated media (and most of its peers) in 2006. But that was right before one of the most epic secular shifts in content consumption in history (watch interview here, here and here).
Freston revealed that while he was at the helm they made a $750 million bid for Facebook. At the time, Facebook had $25 million in sales. Facebook turned them down. That sort of conglomerate interest in social was preceded by News Corp’s $580 million acquisition of MySpace in 2005. At the time, MySpace was the dominant social media property. Also around that time, Google swooped in bought YouTube for $1.65 billion. Many thought that was an obscene sum, But one analyst suggests it’s now worth ~$70 billion.
Freston’s memories of the copyright infringement lawsuit VIA pursued against Google’s Youtube was fairly revealing about what was in store for VIA after his tenure. A series of suits that cost them hundreds of millions of dollars, after continued failed rulings. And more importantly, they still ended up on the wrong side of the rapidly growing trends for content distribution as they dug in to defend their perceived moat.
We spent some time on the desk that night kicking around what VIA needs to do, assuming the current management and board are outed. Most of the suggestions from Freston and the panel surrounded what sort of acquisitions or partnerships the company could make. It strikes me as odd that a company like VIA, that trades at a fairly steep discount on a price to sale basis 1.35x, to CBS at 1.7x, DIS at 2.8x, FOXA at 2x and TWX at 2x, with only an $18 billion market cap, the smallest by far of this group, would not be considered a target itself by a player who has existing new media distribution. Obviously Redstone’s controlling stake is a large impediment as Freston pointed out. But for a stock that just experienced a lost decade and has been cut in half from its all time highs made in 2014, I think it is safe to say Redstone’s move last night to replace 5 board members (including the CEO) is a step in the right direction. Investors agree with the stock rallying 5% on the report:
But this morning we saw news that reinforces the problems at VIA. The company guided current quarter eps down significantly to $1.03 vs consensus estimate of $1.38. Interestingly, VIA stock was down pre-market on the eps news, but now it is up. The problems at VIA are well known. And it looks like some think that any bad news from current management is good news for those who want a management turnover.