Activists are targeting boardrooms with older, over-tenured directors and your company could be next: BoardEx reveals that there are 2,631 directors over the age of 75 at U.S.-listed companies.
By Ronald Orol
A director-election battle is set to go the distance at CDI Corp. (CDI) in June and the two veteran activist investors at the gate see “chronic governance failures” as a key issue at the engineering, staffing and IT company. The fund managers, Josh Schechter and Bradley Radoff, cut their teeth in the early 2000s working at established activist funds Steel Partners and Third Point LLC, respectively. They argue that CDI should look into selling itself because its share price has been on a downward trajectory, and prospects, in their opinion, look bleak.
To back up their boardroom shuffle effort, Schecter and Radoff are focusing on replacing five incumbent board members, with incumbent directors Lawrence Karlson, 75, Michael Emmi, 76 and Barton Winokur, 77, as potential targets. The trio have sat on the CDI board for 28, 18 and 49 years respectively and the company’s founder, Walter Garrison, 91, is chairman of the board.
“You have a group of people who have overseen this company, through multiple CEOs, as it continues to deteriorate,” said Schechter. “Several of them have been on the board for decades. It is apparent they don’t have the skill set and know-how to execute. Over-extended tenure is a serious issue when the situation is clearly not working for shareholders.”
The campaign puts a spotlight on a core governance issue often highlighted by activists seeking to shake things up at targeted companies - that over-tenured directors reaching their twilight years often need to be replaced, especially when the length of time they have spent on the board suggests that they may be too cozy with management and no longer have the skills needed to drive share-price improvement.
“Tenure and age often come into play when it comes to contested elections,” said Pat McGurn, special counsel at proxy adviser Institutional Shareholder Services. “The activist investors usually call into question whether the senior directors who have sat on a particular company’s board for a long time are independent. Barely a contest goes by where activists don’t target an older director with a younger director they are nominating.”
In addition to CDI, many other companies have been the target of activists, with a focus on over-tenured older directors, including Viacom Inc. (VIAB), Bed Bath and Beyond Inc. (BBBY) and Eastern Co. (EML) And many other directors on the older and over-tenured side could soon become activist targets if the companies they oversee fail to perform.
According to relationship mapping service BoardEx, a service of The Street, there are 2,631 directors 75 or older at U.S.-listed companies, 850 of which are 80 or over and 51 are over 90. Directors 75 or over represent about 10% of the 27,809 directors at U.S. publicly-traded companies, according to BoardEx, and there 323 directors over the age of 75 at S&P 500 companies. Alternatively, BoardEx reports that there are only 195 directors on U.K. publicly-listed companies over the age of 75, 47 of which are over 80 and two over 90.
Last year Bed Bath and Beyond directors Stanley Barshay, 78, Dean Adler, 61, and Victoria Morrison, 63, all members of the retailer’s compensation committee, were targeted in a shareholder “just vote no” campaign led by the New York City Pension Funds. The directors, considered over-tenured by governance experts, received negative votes of about 35% of participating shares. The campaign also convinced a majority of shares to vote against the senior pay packages at the retailer.
Also consider Eric Jackson, a tech and media activist, and his campaign to shake up Viacom in 2015. In a 99-page presentation, partly targeting Sumner Redstone, 93, the then-controlling shareholder, Jackson noted that the media giant had the “oldest directors’ on average,” at 66, of any of their media peers.
In another situation, Jim Mitarotonda and his activist fund, Barington Capital won two director seats on security product company Eastern Co.’s (EML) board recently, in a move that removed one director, David Robinson, who had been there for 25 years and was 72 years old at the time.
In many cases corporate boards have a hard time removing directors that have been at the company for a long time but no longer have the skill set needed to meet the latest challenges facing the company. Activists argue they can come in and become a catalyst to help boards bring in the new directors they need, especially when corporations are uncomfortable about asking people who have provided such long service to leave.
Anne Sheehan, governance chief at the California State Teachers’ Retirement System, or CalSTRS, points out that many corporate boards have set up retirement ages in their bylaws, which she said could be good or bad. “Sometimes you can lose good people or it can be used to move people along that need to move on,” she told a gathering of the Council of Institutional Investors in February.
In addition, she put a spotlight on a General Electric (GE) board policy that she thought was “sort of revolutionary” that sets a board tenure limit of 15 years for all directors except the CEO. John Brennan, GE’s lead independent director, told the gathering that the limit helps to make sure individuals with the proper skill sets continue to be in place to meet changing needs. “The challenge in a place like GE is you need to understand the big business issues and then you want people on the board with digital experience, or healthcare experience or manufacturing experience,” Brennan said. “It’s an ongoing project.”
Brennan said the limits help create age and “cognitive” diversity in the boardroom. “A 45 year old tech leader thinks differently than a 65 year old financial guy,” he said. “That is one of the great appeals of term limits. It’s nice to have different generations in the boardroom.”
A 2016 study by SpencerStuart, an executive search firm, reports that 73% of S&P 500 boards have set a mandatory retirement age for directors, and that a little under half of those have it set it at age 72. The study noted that setting the retirement age at 75 is a trend that has accelerated in recent years, with 39% of boards having putting their cap at that level or higher, compared with 20% in 2011.
A look at the oldest and youngest boards reveals a cross-section of corporate America. Among the oldest boards in the U.S. include CBS Corp. (CBS), Kinder Morgan Inc. (KMI), and M&T Bank Corp. (MTB), according to BoardEx. CBS has 11 members over the age of 70, four of which are over 80 years old, Kinder Morgan has ten members over 70 and M&T has nine. The Oracle of Omaha, Warren Buffett, 86, is one of five members at stellar performer Berkshire Hathaway (BRK.A) who is over the age of 80. (Charlie Munger is 93). And Costco Wholesale Corp. (COST) has four members over 80, including two over 90.
Alternatively, the three youngest boards, according to BoardEx, are Tripadvisor Inc. (TRIP), with an average age of 49.9, Facebook (FB), 50 and Coach Inc. (COH), 53. For now, however, activists will target underperforming boards with over-tenured, older directors. But as with Berkshire Hathaway, not all older, long-tenured boards, make good activist targets.
In fact, Jackson, formerly of activist fund SpringOwl and a key investor critic of Viacom’s board, takes issue with corporations that set up age limits, arguing that it is very hard to “legislate” good governance.
“We can create easy to define rules like ‘no directors over the age of 80’ but the truth is that can’t get at the dynamic of a discussion in a room,” Jackson said. “Some 80-year-olds could stay on some boards another 10 years. Some 60-year-olds are checked out.”
Technical analysis of major US ETFs and some individual stock names.
Wendy’s (WEN): The fast food sector is seeing a bounceback in recent quarters as spending habits shift to value channels. This ongoing transition has helped propel earnings from McDonald’s in the third quarter and is expected to bode well when Wendy’s reports tomorrow morning. Wendy’s recent surge can also be credited to the multi-year brand transformation that includes menu innovations, promotional campaigns and bolder packaging. Meanwhile, the burger chain is heavily invested in expanding its technological presence through a mobile app and self ordering kiosk. Many of these initiatives contributed to a 0.4% increase in same store sales and 370 basis point increase in blahs for the second quarter. Analysts are still expecting softer year over year comparisons as its recovery continues to gain steam.
Viacom (VIAB): Mainstream media networks have seen their share of misfortune in recent quarters as cord cutting habits continues to pick up pace. This has reflected weak earnings from notable networks like Disney which is seeing a sharp downturn in ESPN subscribers and will have an adverse impact on Viacom’s earnings tomorrow. The media conglomerate has posted negative top line growth in 5 of the past 6 quarters thanks in part to tougher competition and cord cutting. Analysts expect this to continue in its upcoming quarterly results, forecasting a 47% decline on the bottom line and 11% on the top. Some of this will be offset by efficient cost controls and operational improvements during the quarter. Key partnerships with Sony and Verizon are worth noting and may be determining factors on Viacom’s return to glory. Investors may overlook these recent indiscretions if management suggests a rumored merger with CBS is on the horizon.
Croc’s (CROX): CROX has had its share of ups and downs in the past few quarters. The shoe maker returned to profitability in the first quarter of 2016 but subsequently posted negative growth on the top line. Expectations are edging lower this quarter as we head into the colder months when Crocs historically have not done as well. Analysts are calling for a 5 cent loss per share on a 7% decline in revenue to $249.31 million. Shares are down 24% in 2016 and historically drop 4% immediately through the print.
Norwegian Cruise Line (NCLH): Travel trends appear to be gaining steam this earnings season as evidenced by strong results from the airlines, hotel operators and cruise liners. This bodes well for Norwegian which reports its quarterly results tomorrow before the opening bell. The cruiseliner has benefited from robust year over year comparisons posted by its peers Carnival and Royal Caribbean. Norwegian still faces several near term headwinds that could dent quarterly results including its exposure to European markets and weak FX translation. Europe currently accounts for a third of the company’s capacity and could potentially throw results off course.
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Each week Forcerank runs a variety of games covering different industries. What we have found, is that the lowest ranked companies in their respective games deliver the biggest negative price movement for that week. This week the losers include Viacom, Wells Fargo, Tableau, Groupon, and Coach
Viacom Inc (VIAB) | Media: After coming off a legal battle that lasted virtually the whole summer, Viacom continues to make headlines. Now the media conglomerate is believed to no longer be interested in selling the underperforming Paramount Pictures. Shares are already down 10% this year and new downgrades could extend those losses even further. The most recent coming from Stifel which downgraded the stock from buy to hold citing concerns over Paramount. Closely watched technical indicators like on balance volume and MACD support this current trend down.
Wells Fargo (WFC) | Financials: Wells Fargo is still in the midst of its fake account scandal that will surely not be forgotten in the near future. The company’s CEO was ordered to testify on Capitol Hill in regards to his involvement, or lack thereof, in the scandal. At the testimony, Stumpf openly denied that this was an orchestrated act by management and apologized to all those who were impacted. It’s often the case that a company’s stock performs poorly when its CEO is interrogated by the Senate. Sometimes no news is good news.
Tableau (DATA) | Enterprise Software (Small/Mid): Shares are down 43% year to date thanks to a weak fourth quarter that cut the stock by 25%. Since then, shares have largely traded sideways with recent earnings reports failing to shine new light. Adding to its woes, the stock has become victim to a slew of downgrades. In the past few months, RBC Capital, DA Davidson and Deutsche Bank all downgraded the stock. More recently the company gave a bearish crossover when share prices dipped below its 50 day moving average.
VMware (VMW) | Most Heavily Shorted: VMware was the worst ranked stock in the two games it was featured in this week: most heavily shorted and large enterprise software. Shares are down 8.4% in the past 12 months driven by an ongoing slowdown in revenue growth. Meanwhile the company’s chart doesn’t do them any justice. There are multiple gaps below its current trading price that still need to be filled. Additionally negative OBV and declining MACD support a downturn on the horizon.
Coach (COH) | Apparel: Coach shares are down nearly 11% in the past month with abysmal fourth quarter earnings largely to blame for the downturn. Just last week the stock was downgraded by Morgan Stanley to Underweight from Equal Weight. Luxury brands like Coach haven’t translated well in this current retail environment where discounters are king. Frequent discounts and growing outlet stores have kept sales afloat but have severely hampered blahs. Meanwhile a bearish crossover of its 200 day average above its 20 day average is sign of near term weakness. The saving grace in Coach’s freefall is that it appears to be oversold, which means a reversal could be on the horizon.
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Monsanto (MON) shares were higher in early trading. It’s finally official: The US seeds giant is being bought by Germany’s Bayer for $66 billion, or $128 share in cash. This is the biggest takeover so far this year. Bayer expects the deal to close at the end of 201
Herbalife (HLF) jumped this morning after billionaire investor Carl Icahn said late yesterday that he asked regulators for permission to more than double his stake in the controversial nutritional supplements firm, which he currently owns a 21% stake in. Icahn also said the Herbalife may be better off as private company.
Viacom’s (VIAB) newly appointed board meets for the first time today. The discussions will likely focus on the media giant’s dividend policy, the possibility of recombining Viacom and CBS, and potential deals involving Paramount Pictures. This comes as the company struggles with declining ad sales and stock price.
Wells Fargo (WFC) remains in focus after falling more than 3% on Tuesday, as Wells lost its spot as America’s biggest bank by market value to JP Morgan. This comes as CEO John Stumpf tries to contain the damage from the bank’s phony account scandal after paying $185 million to settle allegations the bank engaged in illegal sales practices. Stumpf says he won’t resign even though he holds himself accountable. He’ll face questions at a Senate Banking Committee hearing next week.
Until the parent of MTV and Paramount has a permanent CEO, markets will focus on deals rather than fundamentals.
The start of the Tom Dooley era at Viacom Inc. (VIAB) received a tepid welcome from Wall Street on Monday, Aug. 22, with shares of the New York cable network and film production group dropping despite long-awaited progress in a leadership transition and the resolution of infighting between management and controlling shareholder Sumner Redstone.
the end of a lengthy, messy dispute, shares dropped $1.75, or more than 4%, to
$41.74 on Monday.They were up slightly in morning trading on Tuesday to $41.90.
Dooley is the interim replacement for CEO Philippe Dauman, who remains as nonexecutive chairman through Sept. 13. The move accompanies a deal with Redstone’s family. National Amusements Inc., through which Redstone controls Viacom, and related parties have resolved litigation over the media company’s governance that stretches from California to Delaware and Massachusetts.
Hanging over Dooley, or whoever gets the permanent job, are questions about whether the company will sell part of its Paramount studio or merge with CBS Inc. (CBS). A more fundamental question is how to fix Viacom’s flagging cable networks such as Comedy Central, MTV, BET, Nickelodeon and Spike.
This season Comedy Central is down 21% among viewers aged 18 to 49, BMO Capital Markets analyst Daniel Salmon wrote in a Monday report. MTV, Spike and Country Music Television are down about 8%.
Meanwhile, a remake of “Ben-Hur,” which Viacom co-produced with Metro-Goldwyn-Mayer, had an epically bad debut, with a disappointing $11.4 million in sales this weekend.
However tarnished Viacom may be, Wedbush Securities analyst James Dix observed that esteemed brands such as Apple Inc. (AAPL) and Converse repaired their brands more than a decade ago and have regained stature.
Apple, of course, had sunk so low in 1997 that it had to accept a $150 million investment from evil empire Microsoft Corp. (MSFT). Recall also that the Cupertino, Calif., company that has so deftly anticipated and driven trends in tech and media once fired Steve Jobs, before eventually coming to the more competent decision to rehire its co-founder.
Converse went bankrupt in 2001, before resuscitating the house of Chuck Taylor as part of Nike Inc. (NKE). “It didn’t hurt Converse to be acquired and backed by Nike, which had a deeper pocket to promote the brand,” Dix said.
Viacom has an $18.5 billion market cap, and is in far better position than Converse was at its low.
To start its turnaround, Dix suggested, the company must spend money to develop hit shows. MTV’s long-running reality game show “The Challenge” rates well, he suggested. “The idea that MTV can’t make anything that people think is actually good is one thing they would probably try to address,” he said.
“Impractical Jokers” on TruTv, part of Time Warner Inc.’s (TWX) Turner division, is the type of programming that Viacom could pull, he added.
As Viacom tries to regain viewership, Dix said, the company also can’t get cheap in negotiations with companies that are rolling out bundles of online channels, such as Hulu, backed by Walt Disney Co. (DIS), 21st Century Fox (FOXA), Comcast Corp. (CMCSA) and Time Warner; AT&T Inc.’s (T) DirecTV; and Dish Network Corp. (DISH).
“It’s more important for them to keep broad distribution than to price at a premium,” he said.
Dooley’s term as interim CEO has an expiration date of Sept. 30. The company said it hopes to have some answers about the succession plan by then, although Dooley, who has been COO since 2010, presumably could get more time.
Until Viacom has a permanent CEO, Salmon suggested in a report that the markets will pay more attention to a merger with CBS or a sale of Paramount than fundamentals.
The speculation will only get hotter in the coming weeks. Before Dauman steps down as nonexecutive chairman on Sept. 13, he gets the chance to pitch a sale of a stake in Paramount to Viacom’s board. On the bright side for Paramount and potential backers, the studio’s domestic box office is up 8% this year to $544 million despite “Ben-Hur”’s flop.
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Foot Locker (FL) — The athletic shoes and apparel retailer topped Wall Street estimates in the second quarter, reporting 94 cents a share on revenue of $1.78 billion. Analysts were expecting EPS of 90 cents and revenue of $1.76 billion. Foot Locker’s same-store sales also rose better than expected, climbing 4.7%.
Harley Davidson (HOG) — The company has agreed to pay US authorities $12 million to settle allegations that it sold illegal devices that increase air pollution from their motorcycles. US authorities say Harley Davidson had sold about 340,000 of the devices, known as “super tuners,” since 2008, but the company is denying the claims. Harley Davidson will stop selling super tuners as part of the deal.
Viacom (VIAB) — Controlling shareholder Sumner Redstone and Viacom have reportedly agreed to terms of a settlement, ending the battle for control over Redstone’s media empire. If the deal goes through, CEO Philippe Dauman will step down as a result of the settlement and will be replaced by Viacom Chief Operating Officer Thomas Dooley, who will be interim CEO until Sept. 30.
Deere (DE) — The world’s largest agricultural equipment maker posted a drop in quarterly profit and sales in its third quarter but raised its full-year outlook. Deere reported quarterly earnings per share of $1.55 on revenue of $6.72 billion. The company now expects to earn $1.35 billion this year, up from its previous forecast of $1.2 billion.
Estee Lauder (EL) — The company reported fiscal fourth-quarter adjusted earnings per share of 43 cents on revenue of $2.65 billion. Estee Lauder CEO Fabrizio Freda says the company “capitalized on shifting consumer preferences by leveraging our strength in makeup and positioning our company to win in luxury fragrances.”
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Applied Materials (AMAT) soared to a fresh 52-week high in early trading. The maker of chip equipment used to manufacture memory chips lifted its outlook for the current quarter after reporting stronger than expected earning for its fiscal third quarter as profit and orders surged to a record thanks to demand for new technology used in mobile phones. However, revenue came in slightly below estimates.
Viacom’s (VIAB) Sumner Redstone may get what he wants. The media giant’s CEO Philippe Dauman is leaving the company, according to various reports. In part of a settlement, both sides will drop individual lawsuits, and Dauman will get a $72 million severance package.
Deere (DE) boosted its profit outlook for the year after forking over earnings that topped analysts’ estimates as its cost-cutting efforts paid off. However, profit fell from a year ago and revenue missed estimates.
Gap (GPS) lowered its profit outlook for the year as sales declined in its second quarter. Gap continues to struggle to attract customers and improve blahs by offering fewer promotions and controlling its inventories.
Square (SQ) shares rose in early trading after Steve Cohen’s Point72 Asset Management increased its stake in the digital payment processing company to 5.4%.
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Tesla (TSLA) – The electric car maker reported a bigger loss than expected while coming up short in revenue. Tesla posted a loss per share of $1.06 on revenue of $1.56 billion. The company also reaffirmed its previous guidance, saying it’s on track to deliver 50,000 vehicles in the latter half of this year.
Nike (NKE) – The company has announced it is getting rid of its golf equipment business as it struggled to boost sales and plans to focus on its golf footwear and apparel business to “accelerate innovation.” Golf was Nike’s worst performing division last year, raking in $706 million.
Square (SQ) – The digital payments company topped analysts’ estimates in the second quarter and raised its annual guidance. Square reported its gross payment volume rose to $12.5 billion, up 42% year over year and noted that it launched new products during the quarter to provide sellers with more options to accept payments.
Viacom (VIAB) – The company topped Wall Street estimates in the second quarter, posting adjusted earnings per share of $1.05 on revenue of $3.11 billion. Viacom reported an increase in ratings across some of its networks, including Nickelodeon, as well as 30% revenue growth in its filmed entertainment segment.
21st Century Fox (FOXA) – Fox posted adjusted earnings per share of 45 cents for its fiscal fourth quarter, topping estimates by 8 cents a share on revenue of $6.65 billion.
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Tesla (TSLA) reported a bigger than expected loss of a $1.06 a share. That’s about double what analysts’ were expecting. Revenue also missed expectations as the company struggled to make more cars. Tesla delivered over 14,000 vehicles during the quarter, which was roughly in line with forecasts. The company said it’s still on track to deliver 50,000 cars in the second half of this year.
Herbalife (HLF), the dietary supplement maker, posted a beat on both its top and bottom lines for the second quarter. The company also raised its outlook for the year. Last month, the FTC reached a $200 million settlement with Herbalife after determining it is not a pyramid scheme. The decision was a major blow to activist investor and short-seller Bill Ackman, who called the company a “criminal enterprise.”
Square (SQ) shares were up sharply in early trading. The digital payment processor run by Twitter’s (TWTR) Jack Dorsey raised its outlook for the year after second quarter revenue beat estimates and its loss narrowed from a year ago. Sales soared 41% as more merchants used the company’s technology to process mobile payments.
Viacom (VIAB) reported better than expected earnings and revenue for its fiscal third quarter. Even though profit fell from a year ago, the owner of MTV, Comedy Central and Nickelodeon saw a 1.6% increase in revenue due to higher license fees and some strength in its movie business.
Second-quarter earnings season has kicked into high gear this week as more than 90 S&P 500 companies release their results. With the Dow at an all-time high, all eyes are on corporate earnings and whether or not results will help the market continue its upward momentum.
Profits at S&P 500 companies are now expected to drop by 4.3%, less than the 4.5% fall previously estimated by Thomson Reuters.
Thomson Reuters senior research analyst Sri Raman told Yahoo Finance’s Seana Smith in the video above that this could be the fourth consecutive quarter where earnings have shrunk.
Raman has a proven track record with picking specific stocks that beat earnings estimates and those that miss. His team was right on 80% of their picks during the first quarter. How does he do it? Each quarter, Raman and his StarMine team use the Eikon Screener to determine companies that will beat and those that will miss. Their findings are based on SmartEstimate and Predicted Surprise data. Raman shared two negative surprise earnings picks and two positive surprise earnings picks with Yahoo Finance.
Raman’s two negative surprise earnings picks:
Tesla (TSLA) – “Tesla is in the middle of a negative news cycle,” said Raman. “Its autopilot has come under scrutiny… One of their biggest issues right now is production. They’re not able to produce as much as they’d like to and that’s because they haven’t had the experience in the auto industry.”
Viacom (VIAB) – “Teenage Mutant Ninja Turtles was not as big of a hit as they were expecting. To a broader point, look at Comedy Central. Just a year ago, it had Jon Stewart and Stephen Colbert. They’re big stars. They both left and now Comedy Central is left with not as many younger viewers watching. We’ve seen ad revenues go down sequentially.”
Raman’s two positive surprise earnings picks:
Amazon (AMZN) – “Revenues have increased by more than 20% year-over-year in the last three quarters. We’re seeing so many people go online to make their purchases. Its Prime Day was a huge hit. It was a glorified clearance sale, but they positioned it in such a way that so many people were getting Amazon Prime to get those deals… Another thing to look at is Amazon Prime video, which is starting to pick up steam.”
Boeing (BA) – “We expect Boeing to beat analyst estimates because we’re seeing revenue growth,” said Raman. “During the Farnborough air show, we noticed that they raised their expectations for the next 20 years by 4%. Look at all the turmoil around the world with the Middle East and what happened in Turkey. It wouldn’t be surprising to see defense budgets go up in those areas. This would benefit Boeing.”
Viacom, a global media conglomerate that owns brands like MTV, VH1, Nickelodeon, and Comedy Central, will be reporting 4Q2015 earnings before the market opens on Thursday. Last week, Time Warner Inc. lowered its profit guidance, causing a hullaballoo amongst media companies. Viacom shares fell 6.6%, as cord-cutting concerns continue to be a reality. Factoring in lower cable revenues and other headwinds, the Estimize group is presuming EPS of $1.53 and revenue of $3.88 billion, surprisingly lower than Wall Street analyst estimates of $1.54 EPS and revenue of $3.93 billion.
Though Viacom’s main source of revenue is from cable networks, declining cable revenues and cord-cutting will only be a temporary setback. The firm is working feverishly to find new streams of revenue and is assertively exploring the digital space.
In late October, the company became a major minority stakeholder in DigiTour Media, a business that holds large-scale festivals and events with social media stars. Viacom will also have a place on the board of directors.
In addition with DigiTour, separate contracts were finalized with e-commerce powerhouse Amazon and multinational corporation, Sony. The provisions of the Amazon deal include the wide circulation of Viacom-owned programming on Amazon Prime, although they recently decided to drop many of Viacom’s shows as viewers become fatigued with reality TV. The agreement with Sony is revolutionary as it may be the future of television platforms. Sony has been working and developing an Internet television service to combat cable companies and attract cord-cutters. The service will carry Viacom-owned channels and both companies will be spearheading the campaign against cable and dish programming.
The New York City based group has also tapped into the likes of TiVo. Both firms have entered into a partnership that allows for the entertainment company to utilize TiVo box user data to help advertisers place more strategic commercials on the Viacom networks. This deal comes shortly after the relinquishment of Viacom Vantage, Viacom’s in-house attempt at helping the advertising firms target specific consumers.
Viacom has been working hard to find additional revenue sources, but results may not be seen until the following few quarters.
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Viacom, Univision, Paramount and others have taken issue with the sale process of the film, television and music production company ahead of a bid deadline this week.
by Kirk O’Neil
Film and television production company Relativity Media LLC faces a flurry of objections to the proposed sale of its assets from Hollywood studios, networks, producers and directors.
Parties, including Viacom International Inc., Paramount Pictures Corp., Home Box Office Inc., A&E Television Networks LLC, Black Entertainment Television LLC and Univision Networks & Studios Inc. filed objections this week to Relativity’s proposed sale of the assets and assumption and assignment of executory contracts. Film producers and directors Brett Ratner and Rat Entertainment Inc., Edward R. Pressman Film Corp. and music production company Rondor Music International Inc. also were among the more than 20 entertainment companies and individuals objecting to the sale.
In addition, Hollywood entities that partnered with Relativity and its subsidiaries on various projects have filed motions to protect their rights. Bids for Relativity’s assets are due by Friday.
Judge Michael Wiles of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on Sept. 1 approved amended bidding procedures for Relativity.
The Beverly Hills, Calif., company has reached an asset purchase agreement with stalking horse RM Bidder LLC, an entity formed and owned by a group of the debtor’s prepetition lenders, for a $250 million sale of the company, court papers show.
The stalking horse would be entitled to $1 million in expense reimbursement if it lost at auction.
Interested parties must offer a minimum of $251 million, which includes the sale price and expense reimbursement, by the Friday deadline. Bidders must submit a good-faith deposit of 5% with their offers.
An auction would be held Oct. 1 if Relativity received more than one qualified bid. Subsequent bids at auction would have to increase in increments of at least $1 million.
A sale hearing is scheduled for Oct. 5.
HBO and motion picture production company Voltage Pictures LLC, which produced “Don Jon,” objected to the assumption and assignment of their executory contracts, since the debtor offered to pay no cure amounts for breaching the contracts.
Viacom, which claimed to have more than 100 agreements with Relativity, also objected to the assumption and assignment of contracts, asserting it could not get answers to questions about their agreements.
Univision and subsidiary TeleFutura Network objected to the sale process to protect their rights in their licensing agreements. Univision holds the Spanish-language broadcast rights to 11 motion pictures, including “Phantom,” ‘The Family" and “Free Birds.” TeleFutura has the Spanish-language broadcast rights to “Mirror Mirror,” “The Raven” and “Act of Valor.”
Rondor Music objected to the sale to protect its rights to produce and exploit the master recordings of country music artists performing Billy Joel songs for an album to be titled “A Nashville State of Mind.”
Under Rondor’s agreement with debtor affiliate Relativity Music Group LLC, RMG is obligated to release an album in the U.S. through a Nashville distributor by Dec. 31. If release conditions can’t be met, Rondor has the option to take over the master recordings and related assets. Rondor also could take over a distribution agreement with Warner Music Nashville.
Rondor asserted the debtor has not met conditions of their agreement and owes it $122,097. The creditor said its interests need to be adequately protected, and the sale order must protect its interests in the assets.
Relativity Media and 144 of its affiliates sought Chapter 11 protection on July 30 after failing to obtain forbearance agreements from secured lenders and additional financing. Relativity also faces litigation related to its business dealings.
Affiliates Relativity Sports LLC, Relativity Sports Management LLC, Relativity Europa Corp Distribution LLC and Relativity Education LLC did not file petitions. Relativity Media’s parent, Relativity Holdings LLC, has shuttered subsidiary Relativity Fashion LLC, which operated its fashion division, M3 Relativity. (Relativity Fashion is the lead debtor in the proceedings.)
In court papers, Relativity Media listed $559.9 million in assets and $1.17 billion in liabilities as of Dec. 31. The company’s film division, Relativity Studios, has produced, distributed or structured financing for over 200 motion pictures, generated more than $17 billion in worldwide box office revenue and earned 60 Oscar nominations. Relativity’s films include “The Social Network,” “The Fighter,” “Oculus” and “Safe Haven.”
Debtor counsel Craig Wolfe of Sheppard, Mullin, Richter & Hampton LLP was not available for comment. The firm’s Malani J. Cademartori and Blanka K. Wolfe and Jones Day’s Richard L. Wynne, Bennett L. Spiegel and Lori Sinanyan also are debtor counsel. Brian Kushner of FTI Consulting Inc. (FCN) is chief restructuring officer. Blackstone Advisory Partners LP’s Tim Coleman, C.J. Brown and Paul Sheaffer are the debtor’s investment bankers. Togut, Segal & Segal LLP’s Albert Togut and Frank Oswald represent the official committee of unsecured creditors.
U.S. equity markets opened weaker, but managed to pare those losses throughout the session, with major averages closing mixed. The modest losses by the S&P 500 and Dow Jones Industrials snapped their 5 day and 6 day winning streaks respectively (DJ 6-day streak best of 2014).
Oil prices slumped again, with new multi-year lows, while the dollar rallied late day.Retailers rallied despite weaker guidance from Macy’s (JCP reports after the close, with KSS, WMT and JWN tomorrow), utilities biggest laggards, energy remains source of funds, and financials were mixed).