CBS - CBS Corporation

[Liberty]

https://www.newyorker.com/magazine/2018/08/06/les-moonves-and-cbs-face-allegations-of-sexual-misconduct

 

Six women accuse the C.E.O. of harassment and intimidation, and dozens more describe abuse at his company.

[UK]

https://www.wsj.com/articles/cbs-ceo-leslie-moonves-expected-to-resign-1536525335

 

As part of the legal detente, CBS ended its efforts to dilute National Amusements’ voting control of the company to around 20%. National Amusements amended its bylaws to block a dividend that would have diluted its influence, and the two sides were gearing up for a legal battle in Delaware scheduled to start next month.

 

As part of the settlement, National Amusements has agreed to undo that amendment.

 

National Amusements also agreed it wouldn’t pursue a merger between CBS and Viacom for roughly two years, the companies said.

 

National Amusements further agreed it would amend the trust that will control CBS and Viacom after Mr. Redstone dies or is deemed incapacitated, according to people familiar with the matter.

 

The trust prohibits the trustees from proceeding with any merger that leaves National Amusements with less than 30% of the voting control of the resulting business. Much of the CBS board views it as an impediment to potential deals and potential drag on the stock.

[ander]

Looks to me like CBS is an extremely attractive risk / reward at current levels. I don't think most investors recognize that they are actually growing subs and are making more money as cord cutting increases. As in if they're making $2 from cable today, they are getting paid $4 on the skinny, and $6 on cbs all access. Trading at less than 10x forward P/E.

 

As has been speculated by the press, once the Les Moonves investigation is done, the board may solicit bids. It's a unique asset that's well positioned and worth substantially more.

 

[ander]

Seems like stock getting closer to re-rating. Based on media coverage looks like discussions with VIAB should be restarting soon which has been an overhang. Stock has been largely ignored it seems - even with solid positive earnings results - demonstrating growth in subscribers. Trading at 8x forward p/e. Curious any thoughts? Or does it just not matter given the fear of Netflix and cord cutting even though CBS seems to be winning with cord cutting.

[Spekulatius]

Seems like stock getting closer to re-rating. Based on media coverage looks like discussions with VIAB should be restarting soon which has been an overhang. Stock has been largely ignored it seems - even with solid positive earnings results - demonstrating growth in subscribers. Trading at 8x forward p/e. Curious any thoughts? Or does it just not matter given the fear of Netflix and cord cutting even though CBS seems to be winning with cord cutting.

 

It’s not as cheap from a FCF perspective. Their FCF is about $1.2B, about $1B lower net income. This is because they capitalized about $1B in program rights. Other media companies do this too, but not to the same extend than  CBS does. With a FCF yield of 7%, it’s not cheap enough for me.

[CorpRaider]

Seems like stock getting closer to re-rating. Based on media coverage looks like discussions with VIAB should be restarting soon which has been an overhang. Stock has been largely ignored it seems - even with solid positive earnings results - demonstrating growth in subscribers. Trading at 8x forward p/e. Curious any thoughts? Or does it just not matter given the fear of Netflix and cord cutting even though CBS seems to be winning with cord cutting.

 

I'm with you, but didn't they reportedly make a bid of Starz?  Suppose Mr. Market may be discounting a roll up/dilution of they take down starz and viab in short succession.

[Spekulatius]

Seems like stock getting closer to re-rating. Based on media coverage looks like discussions with VIAB should be restarting soon which has been an overhang. Stock has been largely ignored it seems - even with solid positive earnings results - demonstrating growth in subscribers. Trading at 8x forward p/e. Curious any thoughts? Or does it just not matter given the fear of Netflix and cord cutting even though CBS seems to be winning with cord cutting.

 

I'm with you, but didn't they reportedly make a bid of Starz?  Suppose Mr. Market may be discounting a roll up/dilution of they take down starz and viab in short succession.

 

Mr Market very likely discounts some acquisitions. Viacom used to the same owner and  CBS is a spin-off from Viacom, so it is likely that the owner will combine them to get the Viacom business out of their hands so to speak. Moore’s was against this, but now that he is gone, it’s possible that there is less pushback. Also, while CBS is doing  alright short term, one needs to ask how this is going to hold up against the giants like Disney, Amazon Prime and Netflix in the long run. CBS manages this business for cash metrics, while the rest of the industry is going for a land grab and a more LT view. What if they need to pivot?

[ander]

Spek - I also look at FCF. Though when I account for programming costs, I then have to look at the life of those versus the future licensing fees or revenue they will generate. CBS has historically been very good at predicting so over long-periods of time those have aligned. In a way I look at it as growth capex - which for me is fine to include in current year FCF but then I need to model out the benefit in future years. When I do that math, the EPS turns out to be a pretty good proxy.

 

CorpRaider - I agree. I'm guessing no one wants to look at until the dust clears and we know what the "new CBS" will look like. Those transactions will have significant cost synergies.

[ander]

Spek - I think CBS has been doing a great job re: looking to the future and adapting accordingly. They are ahead of most competitors re: streaming. Agreed that they are making their investments methodically and gradually - hence the increase in programming costs, but that should drive subs even higher.

 

The big question that you are alluding to is what is the end game for CBS. It is an extremely valuable asset worth substantially more in the private market. Is Shari looking to combine VIAB and CBS and possibly Starz to build scale so she can sell the asset or does she think that she can continue to be a long-term player in the media space? Or is she looking to do what Murdoch did combine a number of assets and split them off accordingly to the highest bidder (but keeping broadcasting, sports and news)?

 

 

Seems like stock getting closer to re-rating. Based on media coverage looks like discussions with VIAB should be restarting soon which has been an overhang. Stock has been largely ignored it seems - even with solid positive earnings results - demonstrating growth in subscribers. Trading at 8x forward p/e. Curious any thoughts? Or does it just not matter given the fear of Netflix and cord cutting even though CBS seems to be winning with cord cutting.

 

I'm with you, but didn't they reportedly make a bid of Starz?  Suppose Mr. Market may be discounting a roll up/dilution of they take down starz and viab in short succession.

 

Mr Market very likely discounts some acquisitions. Viacom used to the same owner and  CBS is a spin-off from Viacom, so it is likely that the owner will combine them to get the Viacom business out of their hands so to speak. Moore’s was against this, but now that he is gone, it’s possible that there is less pushback. Also, while CBS is doing  alright short term, one needs to ask how this is going to hold up against the giants like Disney, Amazon Prime and Netflix in the long run. CBS manages this business for cash metrics, while the rest of the industry is going for a land grab and a more LT view. What if they need to pivot?

[CorpRaider]

Spek - I also look at FCF. Though when I account for programming costs, I then have to look at the life of those versus the future licensing fees or revenue they will generate. CBS has historically been very good at predicting so over long-periods of time those have aligned. In a way I look at it as growth capex - which for me is fine to include in current year FCF but then I need to model out the benefit in future years. When I do that math, the EPS turns out to be a pretty good proxy.

 

CorpRaider - I agree. I'm guessing no one wants to look at until the dust clears and we know what the "new CBS" will look like. Those transactions will have significant cost synergies.

 

Yeah, CBS + VIAB is probably a foregone conclusion.  Leslie is gone and Shari wants it (seems she's right about that btw...have to get back the scale and reverse the splitting up of the IP including Star Trek).  I just wonder what Shari's endgame is.  Seems like she waited a long time and crawled through some nasty stuff to get control of the empire.  There was some talk about consolidating the two and selling out back when that plan was being debated, but seems like all the dance partners might be taken.  I go back and forth between buying VIAB for the potential premium, but man most of their channels/content seem(s) kind of obsolete.

 

[ander]

I don't own VIAB for the same reason in that as a standalone, I'm not as excited by it. Having said that they have ~35% of their revenue is exposed to advertising and they are doing smart things like buying Pluto TV. I also like the Paramount business. I'm not sure re: the premium - because it really depends on the conversion ratio that they end up striking. A couple of years ago, VIAB traded at these levels, but since the merger ratio was announced by the press last year, both CBS and VIAB have been trading in line. (All the pain of the merger, but without any of the benefit of the synergies). CBS and VIAB is a foregone conclusion that just hasn't happened.

 

In terms of partners though, I think there are still a number of potential suitors including Time Warner that doesn't have a broadcaster. Also, the disadvantage that the tech giants have is the lack of full-reach that a broadcaster provides for sports packages (they only get one-offs), so it is possible that Amazon or Google may be interested down the road. Other possibility is the likes of a cable provider looking for a similar setup as CMCSA. All of that is good, but all irrelevant since Shari has full control and a sale is only possible if she wants it. The coup that Moonves tried to pull-off would have allowed for CBS to have been sold.

[ander]

https://www.cnbc.com/2019/05/30/the-board-of-cbs-is-preparing-for-deal-talks-with-viacom-sources.html

 

CBS preparing for deal talks with Viacom in June. Finally, get rid of this overhang.

[CorpRaider]

Did you ever do anything on this?  Looks like the Ariel guys and Klarman bought some CBS on the most recent filings.  Interesting (to me at least) that they went with CBS.  I guess Viacom might not get a premium and in a go it alone scenario they are probably playing the weaker hand.  I have noted some paramount made for TV stuff on amazon prime lately...like the jack ryan series.  Seems like it could make sense to just be a neutral arms dealer to all these video aggregators, like yeah maybe you will be the best creative content producer and best software suite developer for delivering said content, but maybe specialization will win out and you can sell to goog, amzn, appl, nflx, dis, cable cos, etc...

 

I'm suppose I am currently long both via QVAL.

[UK]

https://www.wsj.com/articles/behind-the-scenes-viacom-cbs-deal-drama-was-worthy-of-the-fall-lineup-11565729372

 

"The most notable example of synergy between CBS and Viacom may have been the 2004 Super Bowl halftime show MTV produced for CBS in which Justin Timberlake tore off Janet Jackson’s top, resulting in the infamous “wardrobe malfunction” that exposed her breast to a huge audience."

[Spekulatius]

https://www.wsj.com/articles/behind-the-scenes-viacom-cbs-deal-drama-was-worthy-of-the-fall-lineup-11565729372

 

"The most notable example of synergy between CBS and Viacom may have been the 2004 Super Bowl halftime show MTV produced for CBS in which Justin Timberlake tore off Janet Jackson’s top, resulting in the infamous “wardrobe malfunction” that exposed her breast to a huge audience."

LOL. The merger rationale should interesting, but In guess they can just take the 2006 separation document and negate everything. I believe that CBS would have been much better off on their own. Viacom brings on a lot of ballast that is going to be hard. I guess one thing they could create soap opera or film about their recent corporate history. It would be waste if colorful people like Redstonr and Moones wouldn’t be put on screen. Tarantino would do a great job at this.

[CorpRaider]

I just wanted them to remerge the Star Trek i.p.  Star Trek Universe.  Build it...the nerds will come.  I've noticed some paramount TV productions on like amazon prime and other streaming services.  The Jack Ryan series is produced by them, I believe.

[ander]

I agree with Spek that my preference would have been not to take on VIAB. Though at the right price, I'm willing to and this seems like a very good price. My guess is that they will shed or sell underperforming assets like CBS always has (i.e., radio). Right now, VIAB shareholders are pissed at the merger ratio and CBS shareholders are pissed they now own VIAB. Once the dust settles and investors look at CBS, it should re-rate nicely especially at this valuation (consistent with my view from May).