Yesterday Mario Gabelli (Trades, Portfolio) appeared on CNBC where he said: "Pick up your phone and call your broker and buy CBS (CBS, Financial)."Â
Even for this usually outspoken guru that's a recommendation that leaves very little to the imagination. But there are good reasons Gabelli likely believes it to be a premier acquisition target.
There's been a lot of drama surrounding CBS Corp. Here's a quick refresher.
It is still a U.S. media company. It owns the CBS television network, Showtime and about 30 local TV stations among other media assets. CBS spun off its cable networks and movie studios to Viacom (VIA, Financial) in 2006. There has been a struggle that ended with CEO Les Moonves stepping dpwn as chairman and CEO. He was replaced by Joseph Ianniello as CEO for now.
The power now lies with Shari Redstone who heads a board of seven trustees for the family trust, which controls National Amusements Inc. and indirectly both CBS and Viacom. Here is a simple graphic explaining the ownership structure:
Source: cfeg
Without this, admittedly long, intro to the company, Mario Gabelli (Trades, Portfolio)'s words are unintelligible.
Gabelli said he thinks the company is a buy because Redstone gets a new board. She has total flexibility. His though process is: What is she doing next? Gabelli thinks the answer is that she is going to combine Viacom and CBS.
Gabelli sees another possibilty where Sony (SNE, Financial) does a merger. That's a possibility if the transaction is structured so that the family can take equity. Usually, family compnanies don't like transactions where they have to accept cash because the IRS will take their cut. It is much preferable to parlay a large ownership stake into another (publicly) traded company.
The potential for a forced merger with Viacom is deferred for two years. However, the board did not win the right to shop CBS to potential buyers as part of the settlement, implying that Redstone will attempt to recombine CBS and its sister firm in two years unless the restructuring plan at Viacom fails and makes a merger of equals even more untenable than it was last year.
'Pick up the phone' and buy CBS, Gabelli Funds CEO says from CNBC.
Lesser-known analysts like Barton Crockett of BRILY (RILY) believe the company to be a very attractive acquisition target even for companies outside of the television industry.
The company trades at 14.8x price-earnings multiple, which is in line with Disney (DIS, Financial) at 13.9x but a big discount to a takeout multiple like the one for Fox (FOXA, Financial) (FOXB, Financial), which is more like 20x. It seems that it is this takeout multiple that Gabelli is after. He's known for his knack in anticipating M&A events.
Disclosure: No positions<.ifr
