Bernstein: ‘Almost 0%’ Chance Of A CBS-Viacom Reunion

CBS Corporation (NYSE: CBS)’s move to sue its parent company, National Amusements, brings the likelihood of a combination with Viacom, Inc. (NASDAQ: VIAB) from around 80 percent to “almost 0 percent,” according to Bernstein.

The Analyst

Bernstein’s Todd Juenger upgraded CBS from Market Perform to Outperform with a $65 price target.

The Thesis

CBS’ suit against its parent company and majority shareholder should be seen as encouraging move for corporate America whereby a board of director is standing up for the best interest of shareholders, Juenger said in a note. Specifically, a tie-up with Viacom would generate a “bad outcome” for CBS shareholders and result in downside to the stock to the analyst’s prior $56 price target.

Juenger said CBS will likely see success in its suit as Delaware case law says a “dominant shareholder owes a fiduciary duty to the corporation that precludes him/her from abusing his power of control to extract value from minority shareholders.”

In CBS’ case, a special committee of independent members and a vote by minority shareholders would be needed for any merger to proceed. A special committee has already been appointed by CBS who unanimously concluded a merger with Viacom is against the best interest of CBS shareholders.

National Amusements could in theory overhaul the CBS board with new members but doing so would be extremely suspect, the analyst said. If so-called “independent” members are found to be loyal to one particular party, they could be “personally liable for billions of dollars in damages.”

Price Action

Shares of CBS were trading higher by 1.4 percent at $54.44.

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