CBS Stock Drops 7% On Word Of New Yorker's Les Moonves Report – Update

UPDATED with slight stock recovery, analyst reaction. CBS stock has lost more than 5% of its value as word of a damning New Yorker magazine report about CEO Leslie Moonves reverberates on Wall Street.

Trading volume is twice normal levels and the stock, now at about $54.50 a share, is enduring more volatility during an unusually unstable year. The stock had dropped as much as 7% today but has recovered some of its value. There has already been stagnation in shares given the legal warfare involving Moonves, National Amusements and Shari Redstone, which has extended to finger-pointing over the timing of the article.

Leslie Moonves

Associated Press

Financial analysts and institutional buyers took a wait-and-see approach on the financial impact on CBS, though the report will likely be pored over by money managers during their weekends in the Hamptons. The pause is partly to evaluate the full article once it is published, and second, because their assessment of the company will depend more on what action the CBS board decides to take than on the details in the piece.

Doug Creutz, an analyst at Cowen & Co., put out a research note this afternoon saying he was maintaining his “outperform” rating on the stock (his only such rating in the media sector) but warned that “a messy situation gets messier” due to the article. “We have no opinions on its veracity as it hasn’t actually been released yet,” he wrote. “It’s fair to question the timing of the story – given the ongoing, and somewhat nasty, legal fight between Moonves/the CBS board and the Redstone family – but whether or not the timing is just a coincidence has no bearing on the story’s truth. We do expect the board to conduct a thorough examination of the claims, which is likely to take some time; until the investigation is completed, we expect Moonves to remain CEO of the company.”

CBS and corporate sibling Viacom began 2018 actively discussing a merger, but those talks soon dissolved into acrimony as CBS went to war with controlling shareholder National Amusements.

Hearings are still scheduled to begin this fall in a Delaware courtroom in the case between NAI and CBS over the dual-class share structure and the legitimacy of NAI’s 80% voting control.

The New Yorker article was written by Ronan Farrow, whose aggressive reporting on Harvey Weinstein and other entertainment figures has re-set industry norms and galvanized a larger cultural conversation about workplace conduct. The full extent of the allegations outlined in the article is not yet clear, as it will be published later today. But CBS got out in front of its publication, releasing a statement from its independent board that “all allegations of personal misconduct are to be taken seriously.”

CBS is scheduled to report its quarterly earnings on August 2. The charismatic Moonves, who won the Carnegie Hall crowd of ad buyers in May at the CBS upfront during the heat of the company’s back and forth with National Amusements, typically presides over earnings calls with zeal. Many investors and analysts have long assessed the value of CBS based on the leadership of the former actor, making him one of the most difficult executives to replace in the media business.

In 2016 and again this year, merger discussions with Viacom (which was joined with CBS from 2000 to 2006) posited that Moonves would stay at the helm of the combined company. His insistence that Chief Operating Office Joe Ianniello be his No. 2, not Viacom CEO Bob Bakish, made the deal discussions head south.

Creutz said the Moonves situation was a culmination of the past 10 months of reporting that started with the Weinstein affair. “It has been obvious for a while that Hollywood has a culture problem given the breadth of the claims we’ve seen emerge over the last year (granted, we think these problems probably exist at scale in other industries as well),” he wrote in his research note. “We had thought it likely that some C-level exec at a major public media company would eventually get caught up by this, and here we are.”

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