Greenfield to Redstone: Take Viacom Private

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Pali Research media analyst Rich Greenfield kept the pressure on Viacom Tuesday, issuing a report imploring chairman Sumner Redstone to take the media giant private.

It was the second critical research note Greenfield has issued on Viacom in about two weeks. On July 10, he sent out a note that among other things, called for Viacom CEO Tom Freston to resign if he couldn’t change the direction of the media giant (www.multichannel.com/article/CA6351238.html?display=Breaking+News).

Greenfield’s latest warning, entitled “Dear Mr. Redstone -- Take Viacom Private,” pulled no punches, pointing to Viacom’s sluggish stock price -- down 18% since the company split into two separate entities (CBS Corp. and Viacom Inc.) in January -- and its apparent aversion to risk.

In the note, Greenfield said Redstone -- who already controls 12% of Viacom’s stock -- could buy the rest of its outstanding shares at a 15% premium ($38.50 per share) and still enjoy a healthy return.

Better still, taking Viacom private would enable the company to invest in new distribution platforms for its content without worrying how Wall Street will react.

“The more we think about these issues and how Viacom stock continues to underperform the market, the more we think, ‘Why isn’t Viacom a private company?’” Greenfield wrote. “Viacom management would then be free to run Viacom how they want, without worrying about public shareholders.”

In the note, Greenfield argued that Redstone can finance the transaction entirely through debt. While taking on the estimated $24 billion to buy out the remaining stock would boost Viacom’s leverage ratio from 2.5 times estimated 2007 cash flow to more than 9 times, the company would still generate about $300 million in free cash flow in its first year as a private entity.

Wall Street reacted tepidly to Greenfield’s note: Viacom stock closed at $33.28 per share Tuesday, down 7 cents.

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