Many money managers have dumped the bulk of their shares in CBS Inc., believing the New York-based broadcasting company is worth owning only as a takeover candidate.
And owning CBS merely for the chance it will be bought is too risky given the poor outlook for the company's fundamentals, they say.
CBS' earnings forecasts are falling, mostly based on the perception that CBS' prime time lineup is weak, and the removal of Connie Chung as co-anchor of its evening news show intensified the scrutiny of management's programming decisions and the future of the company.
With CBS' first-quarter earnings coming in 48% lower than expected, and many managers forecasting flat-to-down earnings in coming quarters, the pressure on CBS to find a new owner is getting greater, some managers say.
But at least one manager questioned whether CBS Chairman Laurence A. Tisch is willing to let go of the company.
"The logical conclusion is that it (CBS) changes hands," said Kenneth Bragdon, portfolio manager for Aeltus Investment Management Inc., Hartford, Conn. While Aeltus has reduced it positions in CBS over the last couple of months - based on the company's declining fundamentals - it has held on to a very small portion on an expectation that a buy-out could occur.
CBS has been viewed as a takeover candidate for years. Now, its declining earnings outlook is feeding speculation that it will be sold soon. Indeed, it's only a matter of setting a price, said one investment manager, who spoke on the condition he not be named.
CBS' first-quarter earnings per share were 0.32 compared with consensus estimates of 0.65. Zacks Investment Research, Chicago, which tracks earnings estimates, predicts estimated earnings per share of $3.38 for the year 1995, and $3.73 for 1996.
Several managers have dumped shares of CBS because of its weakened fundamentals.
SunBank Capital Management, Orlando, Fla., disposed of the bulk of its holdings in January, said Daniel Shannon, senior vice president. SunBank now owns less than 10,000 shares, down from more than 375,000 shares as of the fourth quarter last year, he said.
Mr. Shannon said the risk that earnings won't grow, combined with the possibility that a buy-out deal might not happen, made the stock unattractive. SunBank's managers might consider buying back the stock at a price closer to $50 a share, he added.
Despite the gloomy view of its fundamentals, CBS share prices have remained strong on an expectation it eventually will be bought. As of May 24, CBS closed at 641/2 with a price-earnings ratio of 20.
Stanley Nabi, chief economist and strategist with Bessemer Trust Co., New York, said operating figures indicate the stock is fully valued. But, "Larry Tisch is an asset player," Mr. Nabi said. If approached with a price Mr. Tisch thinks is appropriate, he may sell, Mr. Nabi said. On an asset valuation basis, the company is worth about $75 to $80 per share, he said.
Mr. Nabi said "CBS has a strong franchise," but with Mr. Tisch running the firm like a business, "sometimes artistic considerations are put on the backburner."
M&I Investment Management Corp., Milwaukee, also thinks "the inherent value (in CBS) is still there," said Charles Mehlhouse, vice president and fund manager. "It's one of the three major networks. There's some scarcity value to the company," he said. M&I also pegs the per-share value of CBS around $75 to $80. As of year end, Marshall & Ilsley Trust Co., M&I's parent, owned about 57,000 shares, based on 13(f) filings with the Securities and Exchange Commission, compiled by CDA Investment Technologies Inc., Rockville, Md.
Timothy Miller, senior vice president for INVESCO Trust Co., Denver, said CBS holds "tremendous strategic value for a handful of companies." At current prices, the risk-reward payoff of owning the stock is still attractive, though less so than it has been, he said. While INVESCO hasn't sold shares of CBS, its CBS investment has become one of "nervous ownership," Mr. Miller said. He declined to say how many shares INVESCO owned. As of the end of 1994, INVESCO Funds, which are managed by INVESCO Trust, owned more than 200,000 shares, according to CDA.
But some money managers said Mr. Tisch might bargain too hard for too long, causing CBS to lose its value to potential buyers.
"The risk in it is whether (Mr.) Tisch, by holding out for a higher price ..... begins to degrade the asset value of the franchise," said Richard Weiss, portfolio manager of the Strong Opportunity Fund, managed by Strong Capital Management Inc., Menomonee Falls, Wis. Strong owned 75,000 shares as of Dec. 31, according to CDA.
Money managers said there are a number of firms that might want to buy CBS, such as Walt Disney Co., Turner Broadcasting System Inc. and Tele-Communications Inc., but none could name "a most-likely-to" candidate.
Aeltus' Mr. Bragdon said it is anyone's guess who would buy CBS. "It could be somebody out of the blue," although Turner Broadcasting is a name he keeps hearing. Mr. Miller of INVESCO said Turner and Disney are firms that have stood out the most.
One manager questioned how likely it is that Mr. Tisch will sell the network. Patricia Falkowski, president and chief investment officer of Fiduciary Management Associates, Chicago, said the broadcasting business is tough and competitive, so Mr. Tisch can't just name a price and expect to get it. Plus, Mr. Tisch may feel he can get the most value out of the company by continuing to run it himself, she said.
Fiduciary Management sold its position in CBS a couple of months ago because the fundamentals looked so bad. "It seemed they weren't doing what they needed to do on the programming side," she said. Although she declined to say how many shares they owned, according to CDA, Fiduciary Management owned more than 700,000 shares during the fourth quarter of last year, selling more than 673,000 shares before Dec. 31.
