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One of the world’s oldest movie studios might soon have a new partial owner.
Viacom (NASDAQ: VIAB) Chairman and CEO Philippe Dauman said Tuesday that his company is seeking a buyer for a minority stake in Paramount Pictures. Rumored suitors include Chinese conglomerate Dalian Wanda Group – the majority owner of AMC Entertainment Holdings (NYSE: AMC) and its massive theater chain – and e-commerce giant Alibaba Group (NYSE: BABA). Heavyweight investor Mario Gabelli, a major Viacom shareholder, has been a vocal proponent of Alibaba as a suitable partner.
Paramount could use some fresh blood. The studio that began life in 1912 as Famous Players Film Company and went on to produce such classics as “Sunset Boulevard,” “Rear Window” and “The Godfather” has ranked dead last in box office receipts among the six major Hollywood studios the past four years.
As the chart below shows, 2015 was a downright ugly year for Paramount:
The path to finding a suitor for a Paramount stake will be easier now that the ailing 92-year-old Sumner Redstone finally relinquished his position as Viacom’s executive chairman earlier this month, following questions about his mental competency.
For a little perspective, Redstone was born in 1923, before motion pictures began to talk. That was the same year Paramount released Cecil B. DeMille’s silent version of “The Ten Commandments,” a mega-hit for the studio that cost a then-lavish $1.5 million and grossed over $4 million.
Redstone still holds about 80% of the voting shares of both Viacom and CBS Corp. (NYSE: CBS), although an ongoing lawsuit regarding his mental competency could complicate things.
A Deal of Paramount Importance
Viacom shareholders could certainly use a positive windfall from a Paramount deal. Shares of Viacom lost 45% in 2015 and are down another 10% year-to-date.
A deal with Alibaba would increase Viacom’s media presence in the Chinese market and could open the door for Paramount to produce more films in China.
As Mario Gabelli told the Financial Times in December, the deal would also make sense for Alibaba and its brash chairman, Jack Ma.
“If Alibaba is going to be serious about getting into the entertainment industry Viacom should sell Jack Ma a piece of Paramount,” Gabelli said.
Turning Gabelli’s curiously worded statement around, if Viacom is going to be serious about staying relevant in the entertainment industry, it should seriously consider any offer Ma brings to the table.
Making better movies wouldn’t hurt either.
Here are some of my favorite Wyatt Investment Research articles of the week:
The Big Longs of ‘The Big Short’ Hero – Michael Burry, the hero of the Oscar-nominated film “The Big Short,” has disclosed what stocks he owns. While the movie leads viewers to believe that Burry is so disillusioned with the economy that he’s investing exclusively in water, his holdings reveal an outlook that’s much less ominous.
Oil Production Agreement: Money for Nothing – The recent oil production freeze agreed to by Saudi Arabia, Russia, Qatar and Venezuela was a cause for celebration in the oil pits. But the freeze at January levels means the Saudis and Russians can continue pumping out oil at all-time record levels. And the players pushing the oil price higher must think the people running these four oil-producing countries are idiots and have never heard of fracklog.
This REITs 12.5% Dividend Yield Really Is Safe – The real estate investment trust sector is suffering from guilt by association. Yields run high, but that doesn’t mean risk runs high. Contrary to many energy MLPs, where risk actually does run high, risk actually runs low with many REITs.
Apple’s iPhone: Public Enemy No. 1? – Public safety and civil liberties are at the core of the Apple-FBI saga, but for investors, the future of Apple’s (NASDAQ: AAPL) iPhone sales in China could be at stake.
Why David Einhorn Is Short Heavy Equipment Companies – David Einhorn’s Greenlight Capital shorted major tech stocks in 2015 – with disastrous results. Now he’s betting heavily against heavy equipment companies.
Why Boeing Shares Are Ready for Takeoff – The steep decline in Boeing (NYSE: BA) shares since the start of 2016 stems from questions surrounding its accounting of costs and expected sales of its Dreamliner and 747 planes. The Securities and Exchange Commission has decided the questions are significant enough to launch a formal inquiry, which is obviously a concern because those are Boeing’s most iconic planes. But at the same time, Boeing’s fundamentals are solid and it’s riding a huge wave of demand for aircraft.
Top Hedge Funds Go Big on Health Care – A medical devices company is getting serious attention from a pair of top hedge funds, though another activist has cooled on the stock.
When in Doubt, Go for Double-Digit Dividend Growth – Dividend growers and initiators have historically performed better than other stocks, regardless of market conditions. As the dividend goes, so too should go the share price. That was certainly the case with this tech stock, which announced a 24% quarterly dividend increase on Feb. 10 and promptly saw its shares rise 9% the next day.
Have a great weekend!