CBS Wants To Pay Less Than Market Value For Viacom

CBS Corporation CBS is exploring a move to acquire Viacom, Inc. VIAB in an all-stock deal, which values Viacom below its current valuation, Reuters reported. Despite the unusual offer of buying a company for less than what it's worth on the public market, KeyBanc is supportive of the deal.

The Analyst

KeyBanc Capital Markets' Andy Hargreaves maintains a Sector Weight rating on CBS with no assigned price target.

The Thesis

Viacom's stock closed Monday at $30.55 and a $30 per share take-out offer from CBS implies "significant" potential accretion, Hargreaves said in a research report. Specifically, the combined companies could generate a pro forma 2018 EPS of $6.34 with cost synergies at 15 percent of estimated SG&A at Viacom. The earnings growth potential through cost savings would exceed what CBS could achieve on its own even if the deal results in top-line growth declines.

Viacom's networks and library under the CBS umbrella would prove to be valuable in expanding its reach and lowering churn of CBS's direct-to-consumer services, the analyst wrote.

CBS could sell some of the acquired Viacom assets to other parties for a premium to the implied value in the stock price, according to Hargreaves. For example, a sale of Nickelodeon production assets would still improve the total economic value to CBS.

Price Action

Shares of CBS were trading higher by 2 percent at $51.69 Monday morning, while shares of Viacom were flat.

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