Cash-rich CBS to buy back $2 billion in stock

December 13, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- Flush with cash but stung by poor earnings and apparently limited attractive investment opportunities, CBS Inc. said yesterday that it will buy back $2 billion worth of its shares, bestowing a windfall on current shareholders but further depressing the broadcaster's profitability.

The company will buy back 44 percent of its 23.7 million outstanding shares for $190 apiece, a 12 percent premium above the stock price yesterday morning.

A major beneficiary of the move will be Loews Corp., which owns 24.9 percent of CBS' stock and is run by CBS Chief Executive Officer Laurence Tisch.

A second and critical beneficiary will be the estate of CBS Chairman William Paley, which holds 5.5 percent of the company's stock and recently indicated its interest in selling shares to cover estate taxes.

"The CBS board of directors has concluded that a repurchase of CBS common stock is the best use for a substantial portion of its cash and marketable securities," Mr. Tisch said in a prepared statement.

The buyback will be extended proportionally to all shareholders. That will allow Loews and the Paley estate to continue to own the same percentage of the company's equity.

Tapping into the almost $3 billion in cash CBS held will end some of the speculation of recent years as the company has sold off assets, most notably its vaunted record division but also book, magazine, and music publishing. The company has done little with the proceeds other than build a conservative investment portfolio worth about $116 a share.

"Lots of people have referred to CBS as a money market fund that owned a network," said Kenneth Berents, an analyst with Alex. Brown & Sons. "A move like this had been expected for awhile.

Interest income for the third quarter was more than triple the profits from broadcasting. Shrinking the investment portfolio for the buyback will undermine CBS' main source of earnings. At the same time, CBS broadcasting will come under further pressure because of declining advertising revenues, the expense of covering the Persian Gulf crisis and losses from an expensive contract with Major League Baseball, Mr. Tisch's statement said.

The network will not be profitable in the current quarter, and CBS indicated that further losses are expected in 1991, mitigated only by reduced operating costs that will include layoffs and reduced employment through attrition. Moreover, it expects to cut its $1.10 dividend.

In response to the buyback, Standard & Poor's put CBS on credit watch for a likely downgrade of its rating from the current A Plus.

"When you take away a major liquidity cushion that gave the company a lot of flexibility during a weak period in earnings, the credit becomes weaker," said S&P analyst Heather Goodchild.

Investors, however, reacted positively. CBS' shares moved up $5.625 to close at $175.50.

"The business generates excess cash, so why not pay it out to shareholders?" said James Clark, a portfolio manager with Tweedy Browne, an investment management firm with a sizable holding in CBS.

Among other possibilities, Mr. Clark said, is that CBS might again become an acquisition candidate, as it was several years ago before Loews acquired a controlling stake.

Given its recent move to shrink media operations, CBS has been rumored as a potential acquisition for Disney or Paramount, among others.

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