Viacom Seen Likely to Cut Dividend 50% to Free Up Cash for Debt

  • Board said to meet next week, hire banks to review payout
  • Reduction would free up $300m in cash to pay down debt

The odds are growing that Viacom Inc. will halve its dividend next week to help pay down debt, a move that the company long resisted under former Chief Executive Officer Philippe Dauman.

The media giant, which owns cable networks like MTV and Nickelodeon, normally declares a quarterly dividend by early August but hasn’t done so since a 40-cent-a-share payout announced in May. Viacom last raised its dividend in May 2015. Board members are meeting next week for a strategic review, according to people familiar with the matter, and the company is now projected to reduce the dividend to 20 cents on Sept. 15, according to Bloomberg data.

Viacom’s board has hired Morgan Stanley and LionTree Advisors on a short-term basis to help examine its capital structure and dividend payout, another person familiar with the matter told Bloomberg News this week, asking not to be identified discussing private information. National Amusements Inc., the Redstone family holding company that controls Viacom, is being advised by Barclays Plc and Evercore Partners Inc., according to another person.

Cutting the dividend by half would free up about $300 million a year in cash that could help repay Viacom’s $1.4 billion in debt maturing over the next year, with $10.6 billion remaining after that. A reduction could also help Viacom avoid a debt-rating downgrade and reduce pressure on the company to take other steps to retain its cash, such as selling a stake in the movie studio Paramount Pictures.

“It would demonstrate fiscal responsibility and give them flexibility,” said Todd Juenger, an analyst at at Alliance Bernstein, in a note dated Thursday. “Taking no action to reduce the dividend right now would be an indication the board is more concerned about current stock price than three-year stock price.”

Viacom declined to comment.

A combination with CBS Corp., also controlled by National Amusements, is also possible. But Viacom’s board should take steps to shore up the company’s liquidity so it avoids appearing to be acting out of desperation if it opts for that merger, Juenger said.

Viacom’s bonds are rated two notches above junk by Moody’s Investors Service and one notch by S&P Global Ratings. Both ratings companies have warned about a potential cut. A decreased dividend alone would not be sufficient to maintain the company’s current grade, Moody’s said in an Aug. 9 report. Viacom also needs income from an asset sale such as a Paramount stake, or stronger audience ratings and advertising sales, the ratings company said.

Viacom has already slowed share repurchases, acquiring $100 million worth in the first three quarters of its current fiscal year, compared with $1.5 billion in the same period a year earlier.

— With assistance by Lucas Shaw

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