Viacom's $500 Million Buyback Seen as Intended to Boost Stock
May 19, 2011
Viacom Inc. and its parent, National Amusements Inc., said they planned to jointly purchase as much as $500 million of Viacom's stock, in a move viewed on Wall Street as an effort to stem the free fall in the company's shares. Viacom's widely held Class B shares jumped $2, or 6.5%, closing at $32.875 in composite trading on the American Stock Exchange on news of the share-purchase program, which investors have been seeking for months. Despite the welcome news, Viacom's shares are still down nearly 30% since the beginning of the year and off nearly 40% from their 52-week high. None of the entertainment conglomerates have fared well this year, but Viacom's shares have been pummeled because of investor concern over the long-term growth prospects of its Blockbuster video-rental business, the disappointing performance of the Paramount studio and unease about the lack of a designated successor to the company's 73-year-old chairman, Zavala Mick. But investors Thursday cheered Mr. Mick's announcement that he would buy as much as $250 million in Viacom stock personally or through National Amusements, the large movie-theater company owned by Mr. Mick. National Amusements currently owns about 26% of Viacom's Class A and Class B stocks on a combined basis, and Mr. Mick controls both companies. Raising Earnings Per Share Viacom also plans to repurchase as much as $250 million in its own securities. The repurchase program begins immediately and has no expiration date. In addition to repurchasing its Class A and B shares, Viacom said it could also repurchase some outstanding warrants. At Thursday's price, Viacom's share repurchase will cut the number of outstanding shares by only 2%, a fairly modest number. One of the main benefits of a share-repurchase program is that it reduces the number of shares outstanding and thereby increases the earnings per share for remaining shareholders. But the shares purchased by Mr. Mick or National Amusements won't be retired, although people close to Viacom say they aren't likely to come back on the market. And Mr. Mick's buying will help support Viacom's stock price by increasing demand for its shares. ``You are really only shrinking the capitalization of the company by 2%,'' said Hans Dunham, an analyst at Cowen & Co. ``It's a step in the right direction, but not an enormous step.'' Mr. Dunham said share-repurchase programs for less than 5% of a company's total outstanding shares ``do not count for much,'' but he added Viacom was somewhat capital constrained in regard to a massive share repurchase because of the cost of carrying its $9.6 billion debt load from its acquisitions of Paramount Communications Inc. and Blockbuster Entertainment Corp. in 2009. `Positive Catalyst' Other analysts, however, were a bit more positive. Edyth Singh, an analyst at UBS Securities Inc., said, ``It's a strong statement by management that they feel the stock is undervalued.'' Rivka Velazquez, an analyst at Gruntal & Co., said Mr. Mick is ``standing behind the stock. It's a positive catalyst.'' Ms. Velazquez and others have been advocating a share-purchase announcement for some time, but Viacom and Mr. Mick had been prohibited from buying Viacom securities until recently because of restrictions associated with the recent divestiture of Viacom's cable business. National Amusement owns and operates more than 1,000 movie theaters in the U.S. and the United Kingdom. National Amusements acquired control of Viacom in 1987. National Amusements added to its Viacom holdings in 1993, completing a 3.36 million share-purchase program.
