Pali Research media analyst Richard Greenfield downgraded his rating on Viacom from "buy" to "neutral," on Monday, claiming that although the shares have rebounded in the recent market rally, he has lost confidence that its management team will be able to close the valuation gap.
In a research report Monday, Greenfield noted that Viacom's assets are considerably undervalued and that shares have risen about 45% since the stock market bottomed out in early March. But the analyst added that he has no confidence that the company's current management team, led by CEO Philippe Dauman, will be able to close that valuation gap "particularly given a pattern of poor decision-making, the lack of respect Dauman has from his employees, peer media company managements and investors."
Greenfield also chafed at what he called a board of directors that "continues to excessively reward underperforming management," pointing to Dauman's 15% pay increase in 2008, despite a 1% gain in earnings per share and a 57% decline in its stock price.
Greenfield has been no fan of Viacom management for the past few years - he called for the ouster of former CEO Tom Freston in July 2006 shortly before the CEO was officially let go - and he isn't changing his tune. He added in the report that the problems plaguing Viacom during Freston's reign have actually accelerated under Dauman - MTV ratings continue to decline even though its core audience is watching more television and its Epix Pay TV joint venture has failed to land a single distributor a year after it was first announced.
In addition, Greenfield said the media giant was wasting its time in its lawsuit against Google, and instead should be working with the online giant to "help figure out how they can make more money online from Viacom's content and programming."
And while Greenfield professed no great love for Freston when he had the job, he wrote that the current CEO may never be removed because of his close relationship with Viacom chairman and largest shareholder Sumner Redstone. Dauman helped Redstone acquire Viacom back in 1987 and has been a trusted adviser ever since. The former attorney is the executor of Redstone's estate.
"Mr. Redstone has never had issues with removing underperforming management before; however, we fear the current situation is unique," Greenfield wrote.
Viacom shares took a pounding in Monday trading - they were down 5.1 % ($1.06 each) to $19.76 per share at noon. However, that decline could be mainly attributed to an overall sell-off in the market - the Dow Jones Industrial Average was down 223 points at mid-day - driven by fears in the banking sector.