Viacom weighs selling minority stake in Paramount film unit

Industry:    2016-02-24

Viacom Inc (VIAB.O) is considering selling a “significant” minority stake in its Paramount Pictures movie studio, Chief Executive Philippe Dauman said on Tuesday In the face of weak advertising sales and poor ratings at its cable networks, investors have been urging Viacom to sell all or part of the movie studio, saying possible buyers include Chinese firms and tech companies looking to develop original content. The entire studio, which Viacom says is in a rebuilding process after some high-profile failures, is worth $4 billion, Sanford Bernstein analyst Todd Juenger estimated this week. Viacom declined to say what percentage it might sell. Dauman, who took on the role of executive chairman from 92-year-old majority owner Sumner Redstone earlier this month, is under pressure to revive Viacom’s fortunes after the company missed Wall Street earnings estimates for the fifth straight quarter, sending its stock down more than 21 percent to a five-year low. Mario Gabelli, the second-largest owner of Viacom voting shares, has suggested Alibaba Group Holding Ltd (BABA.N) as a partner. Activist investor Eric Jackson, whose firm SpringOwl Asset Management has a small Viacom stake, has called for a sale of a Paramount stake to Alibaba or to Amazon, one of many tech companies expanding into developing original movies and shows. Alibaba declined to comment. A Chinese firm would be a likely buyer, analysts and investors said. Hollywood studios are also eager to work with Chinese companies to help get their films distributed in China, which limits the number of foreign films allowed into the country each year. China is the world’s second-largest film market. Chinese property and investment firm Dalian Wanda Group agreed in January to acquire a majority stake in U.S. movie studio Legendary Entertainment. Hunan TV & Broadcast Intermediary Co (000917.SZ) has provided financing to Lions Gate Entertainment Corp (LGF.N), and Huayi Brothers Media Corp (300027.SZ) produces films with STX Entertainment. Alibaba Pictures was an investor in Paramount’s 2015 release “Mission Impossible: Rogue Nation.” With the importance of China’s film market growing, Hollywood studios have tailored content to increase the chances of getting movies into the country and to build their appeal to Chinese audiences. For the fourth “Transformers” movie in 2014, Paramount filmed scenes in Hong Kong and mainland China and added Chinese actress Li Bingbing to the cast. Sony Corp (6758.T) changed 2015 film “Pixels” for global audiences, removing an attack on the Great Wall of China and other politically sensitive plot points, internal emails showed. PARAMOUNT EXPANDING OUTPUT Paramount, whose films this year include sequels to its “Star Trek” and “Teenage Mutant Ninja Turtles” franchises, is increasing its movie output after reducing its slate in recent years and expanding into TV production. It ranked sixth among major Hollywood studios in 2015 U.S. box office receipts. Paramount reported an operating loss of $146 million for the quarter ended in December, more than double the amount a year earlier. “Terminator: Genisys” was among its recent box office disappointments. Viacom has been approached by several strategic investors and has retained PJT Partners as its financial adviser, Dauman said at a media conference. Given how undervalued Paramount is, it makes sense to sell a minority stake rather than the whole company, analysts noted. “If they can monetize some minority interest in this, it could be a relatively big number which would go a long way toward helping the stock price recover,” said Salvatore Muoio, whose firm, S Muoio & Co LLC, is Viacom’s 10th biggest voting shareholder. Viacom shares rose as much as 7.0 percent on Dauman’s statement on Tuesday, before paring gains to close up 0.4 percent at $37.01. The stock has tumbled 47 percent in the past 12 months and 10.5 percent this year through Monday.

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