While Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) held their value in recent weeks, Viacom (NASDAQ:VIAB) plunged by over 25% in the last quarter.
CBS fell by the same amount. Markets are clearly skeptical that merging Viacom and CBS assets and changing no other aspects of the business will not increase shareholder value. CBS trades at below five times earnings while Viacom trades at six times. At these multiples, these stocks are too cheap to ignore.
In late August, CBS and Viacom proposed a stock-swap merger. The deal would do nothing more than increase the net company value.
Strategically, it does not address the problem of Netflix and Disney’s streaming services taking more business and market share away from CBS-Viacom. On Sep. 3, Viacom and CBS established an Integration Management Office. This would ease the recombination of the unified firm. Though it cuts the merger risks for shareholders, the unit does not create enough business value.
With CBS-VIAB stock losing a quarter of its value, the merged firm clearly has more to do to win back investors. It needs to have an answer to finding a way to grow in the online streaming market. It must maintain viewership on its traditional properties.
And most importantly, it needs to be positioned in the mobile market, where it offers content to its users and grows from there.
