Viacom: Expect Drama to Continue

The dividend cut was basically forced on the company by the credit rating agencies as all three major agencies have negative outlooks on the firm and Moody’s recently described the current $0.40 per share dividend as “ill-advised.” While the dividend cut will save the firm about $315 million per quarter, Viacom expects to tap debt markets to improve liquidity as it works to manage a relatively heavy debt load (net debt leverage of 3.5 times as of the end of June). As we expected, the board also rejected former CEO Phillippe Dauman’s plan to sell 49% of Paramount Studios to raise capital.

Interim CEO Dooley’s resignation was unexpected in terms of timing, but we did not believe that he would receive serious consideration for the permanent CEO position. Dooley will serve until Nov. 15, giving the board a two-month window to select the next leader of the firm. Given that most of the current senior management at Viacom were selected by former CEO Dauman, we expect the board to look for CEO candidates outside the firm, likely at its media peers, particularly CBS given the overlapping ownership.

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