Sumner in winter
Sumner Redstone says he plans to live forever. If it doesn’t work out, his empire will be controlled by a trust. Either way, ending the dual-class share structure at the $21 billion CBS could lift the U.S. broadcaster’s value by a fifth, according to a Breakingviews calculator. The price of doing so would be more than worth it for shareholders.
The nonagenarian tax attorney-turned-media mogul is chairman of the owner of the Tiffany network, home to “The Big Bang Theory” and “60 Minutes,” and its subscription-based cable network Showtime. He holds 80 percent of class A voting shares through his National Amusements vehicle. The B shares, representing more than 90 percent of the economic interest in CBS, get no vote.
Since splitting the company from Viacom a decade ago, Redstone has largely left Chief Executive Leslie Moonves to run CBS unfettered. It is positioned well amid rapid changes in viewing habits. Holding rights to broadcast National Football League games and many of the most popular shows on TV, CBS should be able to keep securing new revenue as viewers migrate to digital streaming packages.
Nevertheless, Redstone’s firm grip almost certainly lingers as a concern for investors, especially as industry consolidation prospects grow. Compared to Time Warner and Walt Disney, each of which only has one class of stock, CBS trades at a lower valuation multiple. CBS fetches about 11 times expected earnings for the next 12 months compared to about 13 times for Time Warner, home to Showtime rival HBO, and over 18 times for Disney, owner of the ABC network.
Assume conservatively that collapsing the CBS shares with voting power into one class of equal voting stock would enable it to be valued more like Time Warner. That would translate into a market capitalization of $26 billion, an uplift of some $5 billion.
The A shares are trading at a hefty 11 percent premium to the B shares, already more than the gap at similarly structured Twenty-First Century Fox, Google and others. Sweeten that to 25 percent and it would cost about $2 billion for CBS to buy them out. That would leave plenty of upside for today’s second-class stockholders. Whatever happens to Redstone, the CBS share structure shouldn’t be immortal.