Shares of Viacom (VIA, VIAB) are lower in morning trading after Stifel downgraded the media giant to Hold, citing reports that the company's board has halted plans to sell its stake in Paramount Pictures.
BACKGROUND: Viacom is no longer "actively" pursuing a sale of a minority stake in Paramount Pictures, Bloomberg reported on Friday, citing sources familiar with the matter. According to the people, Viacom determined that the movie studio is one of the company's key assets. In February, Viacom hired PJT Partners to discuss a potential sale of a stake after being approached by investors who wanted to buy a piece of the movie studio, but the people familiar with the situation say PJT is "no longer doing work on the process." National Amusements, Viacom's controlling shareholder, opposed the idea of a deal. Bloomberg said earlier this month that Viacom's refreshed board would meet on September 14 to discuss strategic options, including the possibility of deals involving Paramount, adding that "no concrete deal" for Paramount was on the table. Former Viacom Chairman and CEO Philippe Dauman recently presented materials to the board detailing options for a potential sale of a stake in Paramount. Dauman had said that a sale of a stake in Paramount could generate up to $4B in after-tax proceeds for Viacom.
STIFEL SAYS 'HOLD': This morning, Stifel analyst Benjamin Mogil downgraded Viacom to Hold from Buy and established a price target of $38, saying that he had been holding the potential of a Paramount stake sale "as one of the key anchors of our Buy rating" and that the stock's valuation is no longer attractive in the wake of the news. If a sale is no longer the case, Mogil says Viacom would likely have to reduce its dividend "at least" in the 50% range and will face capital constraints as it looks to rebound from difficulties. Mogil says the decision not to part with a minority stake in Paramount may turn out to be the right decision "in the here and now" as the decision could lead to continued profitability erosion at a time when the core Media networks have decreased the visibility of late."
PRICE ACTION: Class B shares of Viacom are down nearly 1% in morning trading to $36.67. Shares are down about 11% year-to-date.
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