Analysts at MoffettNathanson raised their stock price target for CBS Corp. to $65 from $58 on Thursday, saying the recent settlement between the company and controlling shareholder National Amusements Inc. would bring “clear structural benefits for CBS shareholders.”
MoffettNathanson previously called CBS CBS, +2.28% “uninvestable,” citing uncertainty over a months-long legal battle and the recently published sexual assault allegations against former chief executive Les Moonves.
But that changed when CBS and National Amusements announced earlier this week they had settled the legal battle over control of the company, and that Moonves would be stepping down “effective immediately” as CEO.
“Now that the CBS board has settled its pending lawsuit with National Amusements, Les Moonves has been removed as CEO, and a new and improved set of CBS board members have been added, we no longer find CBS ‘uninvestable,’” wrote analysts at MoffettNathanson, led by Michael Nathanson.
Read: Opinion: Why did CBS Chairman Les Moonves get such a face-saving #MeToo exit, and others didn’t?
In May, CBS and five independent board members sued Shari Redstone and National Amusements, looking to block a possible merger with Viacom VIAB, +0.30% and dilute National Amusements’ voting control by issuing shares as a dividend. National Amusements is the Redstone family’s holding company, and CBS accused Redstone of misusing her power as a controlling shareholder, saying she had intended to restructure the board to push through a merger with Viacom, which National Amusements also controls. CBS also said Redstone had blocked other acquisition suitors.
Under the settlement announced Sunday, five independent directors and one National Amusements-affiliated director stepped down from the board, and six new directors were elected to replace them. CBS agreed to drop its pursuit of the dividend, and National Amusements said it would not push for a merger between CBS and Viacom for at least two years. National Amusements also said it would give good faith consideration to any business combination transactions or other strategic alternatives for CBS.
“In essence, CBS is open for M&A business,” wrote Nathanson. “We think the current CBS board is free to pursue, or at least consider, conversations with potential third-party acquirers. This seems to be the clear-cut upside for CBS investors versus where things were before the settlement was reached.”
But he isn’t sure there are any clear contenders for the company. “Looking at the media universe, Disney DIS, +0.71% , Fox FOXA, +0.45% and Comcast CMCSA, +2.29% already own broadcast networks and are precluded from buying another one,” he wrote. “Discovery DISCA, +3.44% is the only other buyer of similar scale and they are in the midst of deleveraging and would have to offer a significant premium using its stock to attract CBS’s attention.”
As for the large telecommunications companies, Verizon VZ, -0.41% has already ruled out buying media assets, and AT&T T, +0.42% is still dealing with the Justice Department fallout regarding its last acquisition, he noted.
Nathanson thinks the new board means better days ahead for the company. “The new CBS board has more credible business executives that are younger with strong operational and deal-making track records,” he wrote. Among the new directors are Candace Beinecke, a partner at law firm Hughes Hubbard & Reed LLP who has brokered mergers for corporate clients, and Barbara Byrne, a former VP at Barclays who helped Atria MO, -2.55% spin off its stake in Kraft Foods .
MoffettNathanson reiterated its neutral rating for CBS, citing the company’s exposure to the many challenges in the traditional pay-TV space.
“We still worry about CBS’s longer-term fundamentals given the company’s high exposure to advertising and secular traditional television challenges as well as reliance on SVOD licensing sales,” wrote Nathanson.
CBS has been putting out fires for the past several weeks. Just a few days after Moonves’s departure, the company announced Jeff Fager, the long-time executive producer of “60 Minutes,“ would also be leaving. Fager was mentioned in two recent New Yorker stories detailing allegations of sexual assault against Moonves and a broader culture at CBS of turning a blind eye to sexual harassment. One former employee said Fager had groped her at a company party.
Also see: ‘60 Minutes’ producer Jeff Fager leaves CBS after threatening email to reporter
Read more: ‘Designing Women’ creator details how Les Moonves derailed her career
According to multiple media outlets, Fager was fired for sending a text message threatening CBS reporter Jericka Duncan, who was looking into the allegations of sexual assault against Moonves and Fager. Fager has denied the allegations.
CBS shares have fallen 5.8% in the year to date, while the S&P 500 SPX, +0.37% has gained 8.5%.
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