NYT - Viacom in Cross Hairs of Activist Investor


To Eric Jackson, an activist investor with SpringOwl Asset Management, Viacom appears to be a a textbook-style target.

The entertainment company, which owns Nickelodeon, MTV and Paramount Pictures, has a slumping stock price, a well-compensated management team and board and a decade of missed opportunities online, according to Mr. Jackson.

Viacom sold half its stake in Vice Media — now reportedly valued at more than $4 billion — for just millions in 2007, according to Mr. Jackson. He also took issue with Viacom counting the host of a CBS-produced show as an independent director, even though Viacom shares its chairman with CBS.

In a new, 99-page report, Mr. Jackson outlined a plan — including replacing Viacom’s management and board, instituting a cost-cutting program and recruiting new leaders. He said these changes could increase the stock price by as much as 135 percent.

But unlike Mr. Jackson’s previous campaigns, most notably at Yahoo, Viacom comes with the hurdle of a dual-class share structure. Sumner M. Redstone, Viacom’s 92-year old chairman, holds a majority of the voting power through his holding company, National Amusements, meaning any changes would have to come at the will of the media mogul.

Frustrated shareholders, of whom also include Gamco Investors’ chief executive, Mario Gabelli, have had no recourse other than to complain publicly.

“At the end of the day, they can tell us to pound sand, and we’re kind of stuck,” Mr. Jackson, a managing director at SpringOwl, said in a phone interview. “Viacom made sense to own because even though we’ve got some strong criticisms over the C.E.O., it’s so lowly valued, in our view, there could be a number of things that become catalysts.”

Mr. Jackson owns a relatively small amount of Viacom, well below the threshold of 5 percent required to file with regulators.

Viacom did not receive a copy of the report before it was publicly disclosed. Company representatives declined to comment.

Viacom’s stock price has underperformed peers, currently trading at half the level of its July 2014 peak. The report estimates that replacing Viacom’s chief executive, Philippe P. Dauman, could provide the most upside to the stock. Mr. Dauman, along with the chief operating officer, Thomas E. Dooley, were granted a combined $432 million in cash and stock over the five years through 2014, higher than comparable executives at CBS, Disney, Time Warner and Fox, according to SpringOwl figures.

Mr. Jackson declined to specify who would be a fit replacement for Mr. Dauman, but suggested that someone would need to have a better understanding of digital strategies. Viacom, under Mr. Dauman’s leadership, had sold the half of Vice Media it owned for $3 million in 2007, the report showed. He also suggested that the management team consider partnerships for Paramount Pictures with Alibaba or Amazon, as well as a merger with AMC.

Mr. Jackson also notes how Mr. Redstone, facing a legal battle from a former companion questioning his mental capacity, has skipped earnings calls and shareholder meetings.

Mr. Jackson criticizes the makeup of Viacom’s board, saying that only 27 percent could truly be classified as independent. Viacom counts Deborah Norville, host of the CBS-produced program “Inside Edition,” as an independent director, even though Mr. Redstone also owns a controlling stake in CBS.

Mr. Jackson says he has had little luck reaching executives at Viacom.

“We have reached out to the company to try and communicate these ideas, and it hasn’t been a great experience getting a hold of them so far,” Mr. Jackson said.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: UN +4.5%, MS +3%, DAL +2.2%, BAC +2%, SN +1.1%, CMA +1.1%,UNH +0.8%, FHN +0.8%, MTB +0.5%

M&A news: BITI +80.8% to be acquired by Acorda (ACOR) for $25.60 per ADS), RSE +26% (Brookfield Asset Management (BAM) proposes to acquire Rouse for $17.00/share in cash), SUNE +5.8% (acquires 33% stake in remaining 231 megawatt portion of Dominion's (D) 567 megawatt solar portfolio for $117 mln and sells said stake to Terra Nova for same price), ERIC +4.4% (Ericsson to acquire FYI TV), SHPG +3.1% (Barron's profiles positive view on Shire (SHPG) based on Baxalta (BXLT) M&A deal), TCK +1.6% (Teck Resources: Sandstorm Gold (SAND) has agreed to acquire 56 royalties from co for $22 mln), MSFT +1.4% (will be acquiring MinecraftEdu)

Select China related names showing strength: JKS +9.5%, MOMO +5.5%, CSIQ +5.2%, JMEI +4.8%, SPWR+4.7%, QUNR +3.4%, JASO +3.4%, JD +3.3%, BABA +2.5%

Select metals/mining stocks trading higher: MT +9.7%, CLF +7.1%, AU +4.9%, FCX +4.8%, BBL +3.1%, BHP+3%, AA +1.7%, VALE +0.8%

Other news: CRDC +40% (Receives FDA clearance for expanded indications of Surgical Stapling Device), CANF +18.1% (announced that the USPTO has issued a Notice of Allowance for a patent titled, "A3 Adenosine Receptor Allosteric Modulators"), BSI +10.8% (Court grants temporary stay of legal proceedings against Mega Retail; also confirms it has received an number of offers to purchase the Company's holdings in Blue Square Real Estate), ZPIN +8.8% (received going private proposal valued at $17.50 per ADS and $8.75 per ordinary share), ATV +7% (cont strength), SNY +5.6% (strong EU mkts overnight), PUK +5.1% (still checking), TTM +5.1% (appoints new CEO), NRZ +5% (announces $200 mln share repurchase program), WMB +4.4% (Board is unanimously committed to completing the transaction with Energy Transfer Equity (ETE)), DDD +4.1% (still checking), INCY +2.9% (Incyte and Lilly (LLY) announce Submission of New Drug Application to FDA for Oral Once-Daily Baricitinib), BBRY +2.5% (reports co was awarded a $20 million multiple-year delivery order), CARA +2.1% (may be related to BITI merger), RIO +2.4% (reports Q4 production results),YHOO +2.1% (in symp with BABA), NVS +2% (received two new FDA approvals for Cosentyx to treat patients with ankylosing spondylitis and psoriatic arthritis in the US), GPRO +1.9% (strength in broader mkt this am), NFLX +1.9% (positive WSJD story), FB +1.8% (WhatsApp to pull its yearly subscription fee, test other monetization), BIIB +1.7% (reports EU approval for BENEPALI ), NGG +1.1% (Canadian funds are considering taking stake in NGG, according to Telegraph), SN +1.1% (reports average production of average production of 58,115 boe/day during the 4Q15; lowers 2016 Capital Budget guidance)

Analyst comments: EXEL +5.9% (upgraded to Outperform from Mkt Perform at Leerink Partners), SHOP +5.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley ), SHAK +4.8% (upgraded to Outperform from Market Perform at William Blair), P +4.8% (upgraded to Neutral at BTIG Research), KITE +4.4% (upgraded to Outperform from Mkt Perform at FBR Capital; tgt $75), SWIR +4.4% (upgraded to Outperform from Market Perform at Northland Capital),SWKS +3% (upgraded to Buy at Needham), AZN +1.9% (upgraded to Equal Weight, ResMed (RMD) downgraded to Underweight at Barclays)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: TIF -3.9%, (reports holiday comps; guidance WIT -0.5%

M&A news: SU -1.9% (Suncor Energy and Canadian Oil Sands (COSWF) amend acquisition offer), SAND -0.9% (Sandstorm Gold (SAND) has agreed to acquire 56 royalties from co for $22 mln)

Other news: EBIO -52.3% (Phase 3 data on Isunakinra which missed primary endpoint of ocular itching), EC -4.9% (Moody's downgraded Ecopetrol to Baa3-triggered by persisting stressed oil prices; placed ratings on review for further downgrade), HDP -3.2% (files $100 mln common stock offering; also raises Q4 guidance (in line with estimates)), FTK-3% (announces retention of MHA Petroleum Consultants by CnF Special Technical Committee; Announces select, preliminary Q4 results; appointment of Independent Board Committee and SEC inquiry), SYT -2% (cont pre-mkt vol surrounding M&A spec), PBR -1.5% (reports its oil and natural gas production for 2015; period average of 2.128 mln barrels per day was 4.6% higher than the previous year ), HMY -1.2% (still checking), BLCM -0.5% (files $150 mln mixed securities shelf offering)

Analyst comments: SRPT -2.7% (downgraded to Sector Perform at RBC Capital Mkt)

>>> Early premarket gappers

Early premarket gappers

Gapping up: BITI +77.1%, BSI +11.9%, JKS +10.3%, MT +9.1%, CRDC +8.1%, ATV +7.8%, QUNR +6.5%, FCX +5.7%, CSIQ +5.4%, OAS +5.4%, STM+5.3%, ARMH +5.2%, PUK +5.1%, AU +5%, SUNE +4.7%, ERIC +4.5%, SNY +4.4%, TTM +4.3%, UN +4.3%, BBL +4.2%, MOMO +3.9%, RIO +3.8%, SHPG+3.8%, GPRO +3.8%, MBLY +3.7%, JMEI +3.6%, TOT +3.5%, BHP +3.4%, JASO +3.4%, BBRY +3.4%, MS +3.4%, JD +3.3%, ASML +3.3%, YHOO +3%, BP+2.9%, BABA +2.9%, AA +2.6%, VALE +2.1%, SN +1.1%, CMA +1.1%, FHN +0.8%, BAC +0.8%, UNH +0.5%

Gapping down: CTIC -4.1%, TIF -1.9%, PBR -2.0%, SYT -1.9%, EC -1.4%, HMY -1.2%, ALLT -0.8%, DAL -0.5%, DB -0.4%