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Viacom Shares Slide

Viacom shares slid as much as 3.5% Thursday on the heels of an analyst report critical of the media giant and calls from one of its largest shareholders for more clarity concerning executive chairman Sumner Redstone’s health.

Viacom shares were down as much as 3.5% ($1.69 per share) to $45.96 each on Thursday before closing at $46.73 per share, down 2% or 92 cents each.

Sanford Bernstein media analyst Todd Juenger, a frequent critic of Viacom, wrote in a report Thursday that Viacom’s upcoming carriage negotiations with Dish Network will be critical. Dish, which has about 14 million satellite TV customers across the country has said it wants to reach a deal with Viacom, but has said it wants to pay a fair price for its networks.

That could be a key distinction.  In his report, Juenger wrote that he believes Dish will most likely renew its Viacom deal. But it could come at a substantially lower price.

At the same time, Gamco Investors CEO Mario Gabelli, which owns about 10% of Viacom voting shares, has called for the company’s board of directors to offer more clarity concerning founder and executive chairman Sumner Redstone’s health.

The 92-year-old chairman is the subject of a lawsuit brought by a former girlfriend who claims Redstone is no longer in command of his mental faculties.

In a tweet Dec.1, Gabelli wrote that Viacom should “give to all shareholders what the Board of Directors know about Executive Chair.”

In a statement, the chairman of Viacom’s Governance and Nominating Committee William Schwartz said there is nothing wrong with Redstone’s mental state.

“As has been widely and publicly disclosed, Mr. Redstone’s physicians have publicly attested that he is mentally capable, and this information is consistent with other credible information available to me," Schwartz said in the statement.

Viacom’s deal with Dish expires sometime in the first quarter next year. Losing Dish carriage would be a major blow and would mark the third distributor to drop the channels in the past year. Both Cable One and Suddenlink Communications dropped Viacom channels last year.

Viacom, because it caters almost exclusively to a young audience, has felt the brunt of the impact from declining ratings, subscription video on demand services and online video. The programmer shook up management ranks earlier in the year and has pumped million of dollars into original programming. While there has been some ratings improvement at some of its networks, fiscal fourth quarter domestic ad revenue was down 7%.

While Viacom is making an effort to right the ship, Juenger believes it may be wasted. 

“We don't believe new management can ‘fix’ Viacom's problem,” Juenger wrote. “It's too late. No management team on earth can compel kids and teens to put down their iPads and go back to watching linear, ad-supported TV, and Viacom no longer has the financial wherewithal to diversify away from its dependency on that demographic.”

The controversy round Redstone and succession after his demise is not a new topic. It is widely believed that after his death his shares of the company will be placed in a trust controlled by seven members, including Viacom CEO Philippe Dauman, Redstone’s daughter and president of National Amusements Shari Redstone. 

“We believe any view that the change of control event will bring quick clarity to the future control and disposition of the assets is a very tenuous viewpoint (and investment thesis),” Juenger wrote. “We believe it's more likely that a protracted legal and proxy battle will ensue. During which time, nothing will change in the underlying performance of the businesses (if anything, performance will get worse given the distractions).”