Viacom's Paramount Pictures Sale Likely To Get Two Thumbs Down

David W. Miller, Managing Director of Loop Capital Markets, discussed in a report Friday the likelihood sale of minority stake of Viacom, Inc.'s (NASDAQ: VIAB) Paramount Pictures unit.

Viacom said in late February it's looking into selling a minority stake in Paramount, but part of any deal includes Viacom retaining management control of the entity. According to Miller, Paramount may have been valued at $3.58 billion at the time of the announcement, which is notably below the $9.75 billion Redstone paid for the asset in 1993.

"With that, most bears on Viacom assumed that Mr. Redstone would never tolerate a capital loss on Paramount as long as he was/is alive," Miller said.

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Miller also highlighted various media reports that suggest Redstone "is said to be very upset at the notion of seeing Paramount sold, even if it's a minority position."

Nevertheless, Miller isn't yet ready to conclude that the sale of a minority stake in the unit is "dead" but any potential transaction is likely on hold in perpetuity so long as Sumner Redstone remains the controlling shareholder and Chairman of the company.

Miller continued that Viacom is facing a liquidity squeeze due to declining ratings at its linear networks and an "epic cold streak" at Paramount. The company acknowledged in its second quarter conference call it needs to sell a position in Paramount to create "balance sheet liquidity and prohibit another ratings downgrade."

Bottom line, Miller stated that this whole scenario represents just the "latest in a long list of recent disappointments" for Viacom's shareholders.

Shares remain Hold rating with a price target lowered to $48 from a previous $49.