ViacomCBS (NASDAQ:VIAC) stock looks dirt cheap right now.
VIAC stock opens at about $40 today. That’s a market cap of $25.4 billion, less than this year’s expected sales of $26 billion.
The price to earnings ratio is 7. There’s even a 24 cents-per-share dividend that yields 2.46%. A 30-year U.S. bond yields under 2%.
There’s only one reason for the stock to be so cheap. Her name is Shari Redstone. Redstone controls the company through voting shares inherited from her father, the late Sumner Redstone. ViacomCBS can’t be sold without her say-so.
The result is that the company’s broadcast network, cable networks, movie studio, and streaming service can’t get what they’re worth on the open market.
Kids are taught that shares in a company convey ownership. Increasingly, they don’t.
Dual share companies reserve voting control to a founder or their family. The New York Times has had this arrangement since it came public in 1969.
Control is vested in the descendants of Adolph Ochs, who bought the paper in 1896 for $75,000. The current publisher, A.P. Sulzberger, is the sixth in his line to hold the title.
Media companies were quick to adapt to this imperial business model. Fox (NASDAQ:FOX) remains controlled by Rupert Murdoch and his designated heir, Lachlan.
Brian Roberts controls the fate of Comcast (NASDAQ:CMCSA). Anthony Wood has the final say at Roku (NASDAQ:ROKU).
The model has been adapted by other companies, like Under Armour (NYSE:UAA). The children of Larry Page and Sergey Brin could inherit joint control of Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
Sumner Redstone used the dual share model when his National Amusements, then a movie theater chain, bought Viacom (originally CBS Films) in 1986. He extended it by buying CBS in 1999.
Both companies remained under Redstone’s control when they separated in 2006 and when they were re-merged in 2019. By this time Redstone was deep in dementia.
Control over the company was subject to a years-long legal battle over his conservatorship, which Shari Redstone won. He died last year at 97.
Who Might Buy?
Shari Redstone was recently told by directors she should wait until next year before making any moves. The only financial move the company has made this year is to sell its New York headquarters, known as “Black Rock,” for $760 million.
The deal will help the balance sheet. It had $17.7 billion in debt at the end of June, against $5.4 billion in cash.
The company had almost $2 billion in free cash flow last year. Both the debt and the dividend, which costs $581 million/year to service, remain affordable.
When added to Viacom’s market cap, the debt gives it an enterprise value of $43 billion. That makes it a minnow compared with the companies it competes with in the streaming space.
Comcast, Netflix (NASDAQ:NFLX) and Walt Disney (NYSE:DIS) are each worth over $200 billion. Even Roku, which re-formed in 2008 with Netflix to make streaming player hardware, is worth $47.5 billion.
The Bottom Line
If ViacomCBS were available for purchase, if it were a true public company, it would be worth far more than it is. AT&T (NYSE:T) paid $85.4 billion for Time Warner, a far weaker set of assets, in 2018.
But ViacomCBS is not a public company. Practically, it is a private company. If you’re buying VIAC stock, your best bet is to wait for Shari Redstone to make a move.
Shareholders wasted their money for years hoping her father would do this. He never did.
A ViacomCBS investment is like Waiting for Godot. Godot never showed. Redstone may never sell. If she does, you’ll make a bundle.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
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