Investors seemingly pulled the emergency brakes on CBS Corp. on July 27 as word that multiple women in a New Yorker story were accusing chairman and CEO Leslie Moonves of sexual misconduct. The stock closed down 6 percent. While some industry figures were quick to speak out in defense of or against Moonves, there was a hush of shell-shocked silence among many analysts as they went into the summer weekend trying to gauge the fallout.
As the CBS board meets Monday to discuss fallout from the Moonves claims, what is Wall Street concentrating on at this stage? The company’s shares were down a further 3.1 percent in early trading at $52.33. “The focus right now is less on the legal costs but rather more on the substance of the investigation by the board pursuant to its fiduciary duty to shareholders,” CFRA Research analyst Tuna Amobi told The Hollywood Reporter. “The potentially damaging nature of the allegations also raises a legitimate concern as to whether Mr. Moonves (or other senior executives) could ultimately be exposed to criminal liability under the worst case scenario. In the meantime, the outcome of the board’s investigation could set the tone regarding Mr. Moonves’ contractual tenure with the company, potentially raising the question of management succession.”
Analysts have over the years often highlighted the importance of Moonves’ leadership to the company’s success, which in large part explains the big Friday stock drop. “We are not today changing our CBS Outperform rating or $65 target price. But neither are we recommending investors take the current stock weakness as a near-term buying opportunity to accumulate CBS shares,” wrote Todd Juenger at Bernstein Research in a Monday report.
“This raises so many questions that it will likely change the trajectory of CBS/Viacom merger negotiations,” veteran analyst Hal Vogel told THR. And Amobi argued: “It would seem the allegations against Mr. Moonves are likely to significantly undercut or weaken his (and the board’s) position amid the ongoing legal battle for governance, making it more likely that National Amusements could exert further leverage toward a potential merger of CBS and Viacom — on Ms. Redstone’s terms.”
“You don’t get to be a very strong media organization in this environment on the back of just one person,” B. Riley FBR analyst Barton Crockett said Friday on CNBC. “Strong media organizations…have been able to withstand these type of transitions, because they have multiple people who are executing, and I think that’s what you have at CBS.”
He concluded: “You should assume that CBS continues to perform whoever is in charge.” Much Wall Street debate is also focusing on what the Moonves probe may mean on a possible recombination of CBS and Viacom, both of which are controlled by the Shari Redstone-led National Amusements.
One of the few analysts to publish a report quickly, and before the New Yorker put out its report by Ronan Farrow, was Cowen & Co.’s Doug Creutz. “A messy situation gets messier,” he wrote while maintaining his sector best “outperform” rating on the stock and highlighting the legal showdown between CBS and controlling shareholder National Amusements about control of the company. “It’s fair to question the timing of the story — given the ongoing, and somewhat nasty, legal fight between Moonves/the CBS board and the Redstone family — but whether or not the timing is just a coincidence has no bearing on the story’s truth, Creutz said. “We do expect the board to conduct a thorough examination of the claims, which is likely to take some time.”
Concluded the analyst: “Until the investigation is completed, we expect Moonves to remain CEO of the company.”
BTIG’s Richard Greenfield, who has been critical of CBS and Moonves for not having struck a deal to combine with sister company Viacom, reiterated Friday on CNBC that he believes the firms are too small. “Both these companies need to get bigger,” he said, highlighting that Moonves has been opposed to CBS buying Viacom. “In order to get these two companies merged together, which is good for both of them long-term, Les needs to be gone.” But in a nod to Moonves’ business success and creative instincts, he said the ideal scenario would be for Moonves and Viacom CEO Bob Bakish to “work together and and build the combined company for the future.”
