Which Cable Companies Will Roll Over First? – Comcast Corporation (CMCSA)

Viacom

Viacom shares began hitting new highs at the end of January on what The Hollywood Reportercalled a strong earnings report.  But it wasn’t that strong. Profits, in fact, fell. So did revenues, by 16%.

Viacom owns both TV production, cable networks, and a film company, Paramount. Paramount’s box office was especially weak in the quarter. Nickelodeon rolled over with the fade-out of the Spongebob Squarepants franchise. MTV and VH1 don’t even do music anymore – they’re basically reality channels like those on dozens of other networks.

Worse, majority owner Sumner Redstone turns 90 in May. These problems also affect CBS, because Redstone is the controlling shareholders of both companies. The succession plan for Redstone remains murky.

In theory this should be bullish for holders of both stocks, as Redstone’s death would leave both companies vulnerable to a sale, and assuming the sector remains strong that would be at a very high price.

No White Knight

But who could buy? At present levels these companies are worth nearly $60 billion. Could Fox Corp., the entertainment spin-out of NWS, engineer a Viacom take-out? It’s possible, but just barely. Rupert Murdoch, no spring chicken himself, is selling voting stock. Unlike Redstone, he’s doing estate planning, and has placed people outside his family in charge of both operating units.

A move by Disney or Comcast would probably raise all kinds of anti-trust hackles and take years to consummate. Meanwhile shareholders would be left with declining assets.

As any industry goes through these hype-and-bust cycles, smart Fools will dump the weak sisters for a profit and wait for a new entry point among the winners. CBS and Viacom are the weak sisters here. When the fall comes, they’ll fall hardest. And that could happen at any moment.

The article Which Cable Companies Will Roll Over First? originally appeared on Fool.com and is written by Dana Blankenhorn.

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