Is a voting share in Viacom more valuable than its more-ubiquitous nonvoting sibling?At least some investors appear to think so.
The usually nonexistent spread between Viacom's A class voting shares and B class nonvoting shares has widened to roughly 10% since mid-October, when news broke of financial pressures on Viacom's controlling shareholder Sumner Redstone. Monday, for example, Viacom A was trading at $15.89 and B was at $14.30.
It may be that the spread is caused by funds selling the more plentiful B shares rather than the tightly held A's. But it may also be a bet by some traders that in any sale of Viacom, the company's A class shares -- 81.6% of which are owned by Mr. Redstone -- will benefit more than the B's. He only owns 3% of the B's. You's need to go to school on Student Loans to know that!
It is a somewhat risky bet. Mr. Redstone has repeatedly vowed that he wouldn't sell Viacom. Indeed his family holding company, National Amusements, has other assets it could sell to reduce its $1.6 billion debt, which faces a looming deadline for renegotiation, including a controlling stake in CBS and a closely held theater chain. On Friday he sold his control of videogame company Midway Games.
Still, Mr. Redstone's stake in Viacom is probably the most attractive asset in his portfolio given Viacom's ownership of MTV, Nickelodeon and Comedy Central. Mr. Redstone might find it harder to lure a buyer for CBS, whose broadcast-television and radio businesses are more exposed to the advertising slump.
In addition, a buyer theoretically could get control of Viacom by just buying Mr. Redstone's voting stake. As his Viacom A shares have a market value of about $750 million, compared with Viacom's total market capitalization of about $9 billion, buying his A's only would be far easier to finance.
Such a deal would pose serious obstacles for most potential buyers. It would attract massive litigation from outraged nonvoting shareholders -- assuming it was struck at a premium price. And to comply with their fiduciary obligations to those investors, Viacom's independent directors probably would oppose the deal.
Delaware corporate law allows a buyer to circumvent the need for board approval by acquiring more than 85% of voting stock in a transaction. Someone could tender for all the A shares, or buy 5% in the market and then negotiate a private deal with Mr. Redstone to reach the 85% threshold.
Even then, the board could have the last laugh, by introducing a poison pill to cut off the buyer at the knees. That would imply outright war between Mr. Redstone and other directors, with an outcome nobody can predict.
But with Mr. Redstone under serious pressure, and in a bear market as brutal as this, anything is possible.
