Shari’s Choice, a Netflix Moment, & More

Shari Redstone
Photo by Drew Angerer/Getty Images
William D. Cohan
February 20, 2022

Earlier this week, Shari Redstone and Bob Bakish genuflected to Wall Street’s streaming demands by going as far as changing the name of their mashed-up company, ViacomCBS (which neither Wall Street nor Shari’s father ever wanted mashed up, by the way), to Paramount Global. Investors responded by dumping the stock, in one massive exhale, to celebrate the lipstick choreography.

On Friday, my partner Matt Belloni elucidated the many perceived flaws in the Redstone-Bakish strategy. Since that announcement on February 15, the ViacomCBS stock has been gutted 21.2 percent, reducing the company’s market value to $18 billion. (By comparison, Disney’s market value is $276 billion.) Last March, around the time that Bakish successfully launched Paramount+, the ViacomCBS stock was trading at a meme-inflated $100 a share, and now it’s trading at a little more than $28 a share. So, you know, what to do? 

For starters, Shari Redstone can thank her lucky stars that her cantankerous father, Sumner, is no longer around to witness this meltdown. He was a careful—by which I mean meticulous and relentless—observer of the Viacom and CBS stocks, and then when they were combined and then again after he split them apart. He would probably be ballistic now, not only because of the awful stock price, but presumably also because this is the sort of worst-nightmare scenario that convinced him to keep Shari far away from the business for all those years. I doubt he would be amused, as Matt has also observed, that his company’s biggest show, Yellowstone, has become the cornerstone of another company’s streaming platform. 

So what does Shari Redstone do now? I still think, as I suggested recently, that the answer for Paramount Global is Jeff Zucker. I understand he is available. He knows how to run a news division. He knows how to run an entertainment division. And his idea for streaming, CNN+, seems to be off to a promising start under Andrew Morse, a talented executive with whom I used to work at Bloomberg TV. Zucker is, at the very least, an example of what Paramount needs: someone who can shake things up, who has a vision, who can create value, and who can micromanage the company back to health and to a future with a much higher stock price. (A spokesman for ViacomCBS declined to comment.)

Of course, Zucker has baggage. As Matt and another of our partners, Dylan Byers, have pointed out, Zucker unambiguously broke company policy. But if the extent of his corporate mistakes was having a consensual relationship with a direct report and perhaps being too chummy with newsmakers (which we already knew), corporate America will probably give him another chance, especially when there is such an obvious situation that calls out for his unique skill set. The market, after all, cares more about performance than the private lives of consenting adults. (It’s true, don’t @ me.)

One aspect of Shari Redstone’s logic for re-combining CBS and Viacom, in 2019, was to make the combined company easier to sell, in a single transaction that could potentially be tax-free to her and her heirs. Certainly it helped, from a potential buyer’s point of view, that Wall Street valued the combined entity at a significant discount to what CBS and Viacom had been worth individually. Still, despite some of the prestige assets—such as CBS News, 60 Minutes, NFL rights, and Showtime—sitting inside the company, it’s difficult to imagine who would buy the combined company now. There’s lots of talk about Comcast being the most likely buyer, but I don’t see it, as acquisitive as Brian Roberts likes to be, because Comcast already owns NBC, requiring CBS to be offloaded straight away. So why bother? I’m sure Roberts would like to own Showtime and some of Viacom’s cable channels. (I’m also sure he’s thankful that Yellowstone is one of the few bright spots on Peacock.) But Comcast already owns Universal Studios, so he hardly needs Paramount. 

Let’s agree that Comcast is out. Disney is out. Amazon? I think out. Bezos already owns the Washington Post, so he doesn’t need the headache of CBS too. Apple? NFW. Microsoft? Google? Meta? I suppose, possibly, but why, why, why muck up the waters? At the current valuation—at which, of course, Shari would never sell—the company is starting to fall into the zone where it might appeal to a private equity bigwig.

“This is an exciting moment in the history of our company,” Redstone and Bakish wrote in their announcement, marking the new name. Actually, it’s not. And they have to pivot fast. Zucker would help Shari do that.

G.E. Fan Fiction

A reader passed on to me an article in Barrons, a publication that I revere and have written for, suggesting that GE is a buy. Careful readers of Puck will know that I have forcefully articulated the other side of this argument. And I’d like to point out that since Al Root wrote his article, earlier in February, the GE stock is down around another 8 percent. 

Look, it saddens me no end that the once great, powerful and highly respected GE is ending up in the dustbin of history. The first jet engine? The first lightbulb? The first electric cars? The first X-ray machine? The first manufacturer and distributor of electricity? All GE, once the world’s most valuable and respected company. Now, not so much. 

As I have written before, I am much more in the camp of Steve Tusa, the highly respected JPMorgan Chase research analyst, who was one of the first to call bullshit on GE, back in the days when Jeff Immelt was still running the company. Tusa has the equivalent of a sell recommendation on the GE stock and a price target of $50. That gives the GE stock, now trading around $92 a share, a long way to fall. I’m afraid that Al Root, who I don’t know, is simply misguided in his analysis. 

Let’s get real here. Since Larry Culp took over as C.E.O. of GE on October 1, 2018, the GE stock has tumbled around 10 percent while the S&P 500 is up 56 percent. In other words, GE has been a real stinker, where once upon a time the GE stock was an outperformer. (Whether that was justified is a whole ‘nother story.) Of course, that doesn’t mean Culp hasn’t found a way to enrich himself, at the expense of his shareholders. In fact, quite the opposite. As I have written here before, not only is Culp the first C.E.O. in GE history with a contract—which pays him an annual salary of $2.5 million, an annual bonus of another $3.5 million, and an annual stock grant of another $15 million, or a total of $21 million a year for those keeping score at home—but he also managed to find a way in 2020, in the depths of the pandemic, to re-cut the target stock price of his “inducement award” on another generous stock grant. 

Thanks to Culp’s fancy footwork with the GE board of directors in 2020, his new “Leadership Performance Share Award” has resulted in Culp receiving another 9.3 million GE shares—around 1.16 million shares after the 8:1 reverse stock split that Culp engineered last year—worth around $110 million to him these days, as long as he stays at GE through the term of his contract in 2024, or 2025 if the parties to it agree. And he’s not slated to go anywhere. In fact, he’s decided he will be the C.E.O. of what remains of GE—its jet-engine business—after the company breaks itself up into three parts and disappears. The message here is pretty much the opposite of what it should be: Corporate executives should get rich if their shareholders get richer, not the other way around. 

Ford’s Netflix Moment

Ford stock exploded upward Friday on a Bloomberg report that the company is considering spinning off its EV division. It raised the question: are the higher multiples for pure play EV companies versus traditional automakers a byproduct of Tesla mania, or are there fundamental economic justifications for the market to price companies like Lucid and Rivian so highly? 

Of course, Tesla mania has influenced the stock prices of the other publicly traded electric car companies, such as Lucid and Rivian. Tesla’s market value is still near $900 billion, despite having fallen nearly 30 percent since the first of the year. (By comparison, with far less of a track record of actually producing electric vehicles, Rivian’s market value is $60 billion and Lucid’s is $44 billion. Both Rivian’s and Lucid’s stocks are down 35 percent so far in 2022.) Ford, meanwhile, which has been around for nearly 120 years, has a market value of $72 billion. It trades at a value equal to about half its revenue, while Tesla trades at around 16 times its revenue. If Ford traded at 16 times its revenue, the company would be worth some $2.2 trillion, or about one Microsoft. So you can see how it would be possible that some investment banker somewhere came to the conclusion that Ford shareholders would be better off owning a share of Ford and a share of Ford’s electric vehicle division, given the massive discrepancy in valuation between OG car makers and the EV car makers. 

But, if I were advising Bill Ford, which I’m not, I’d tell him to give this idea a pass. For starters, the ridiculous valuations of the pure play EV car companies will continue to contract as interest rates rise, supply chains stay challenged, and the euphoria comes out of the balloons. In short order, the pure play EV stocks will be valued more rationally. More important, in my opinion, is the fact that if Ford is just an OG fossil-fuel guzzling car company, then that’s a company without much future and a whole lot of liabilities. That sounds to me like a recipe for disaster. 

This idea brings to mind the gambit that Reed Hastings once made at Netflix when he proposed splitting Netflix’s fading red-envelope disk business from its streaming business. It was Hastings’ way of trying to point investors to the future of Netflix’s growing and powerful streaming business. But investors hated the idea of the split and Hastings was smart enough to pull the plug on it after proposing it publicly. 

That was the right decision for Hastings, Netflix, and Netflix’s shareholders. Around the time that Hastings proposed the split between a dying business and a thriving business, in September 2011, Netflix’s stock was trading around $22 a share. Now it’s $391 a share, an increase of nearly 1,700 percent in a decade (and that’s with Netflix’s stock down 35 percent year to date). So Mr. Ford and Ford management, be smart here. Follow the Netflix model. Let the relationship between Ford’s hot electric vehicle division and its gas-guzzling division develop organically, with the EV business gradually replacing the OG business and then getting rewarded by the market. That’s what happened at Netflix; the same thing can happen at Ford if you are patient enough and wise enough to let it happen.