Amid several turbulent days in the broader markets driven by recession indicator fears, shares of CBS Corp. and Viacom Inc. tumbled during the week ended Aug. 16 following a long-awaited merger announcement.
CBS and Viacom on Aug. 13 officially shared plans to recombine in an all-stock merger. The companies, which split over a decade ago, said they would be better served through a reunion, as their combined assets and enhanced scale would allow the merged entity — to be known as ViacomCBS Inc. — to compete more effectively in an evolving media landscape.
However, some Wall Street analysts held a slightly less optimistic view of the deal.
Bernstein Research analyst Todd Juenger this week downgraded CBS stock to "underperform" from "outperform," while lowering his 12-month price target on the shares. The analyst said CBS has much to lose by linking up with Viacom — a company he described as struggling to keep pace in a media landscape being transformed by the addition of several new streaming options.
"What a shame," Juenger wrote in a research report obtained by TheStreet. "We believe whatever synergies are produced (we assume $750 million) will pale in comparison to CBS shareholders investing in Viacom's structural problems."
In the deal announcement, CBS-Viacom estimated the merger would create $500 million in annualized run-rate synergies within a year or two of closing.
Moody's this week placed CBS' ratings on review for downgrade, expressing concerns that the company's agreement to merge with a "lower-rated" and "more weakly positioned" Viacom could create difficulties for the combined entity in the future.
Credit Suisse analyst Douglas Mitchelson wrote in a research report this week that the merger should remove some of the "uncertainty" overhanging both companies. However, Mitchelson added that he is unsure about whether the details management provided around the deal's synergies will be enough to attract new investors.
Under the terms of the deal, existing CBS shareholders will own approximately 61% of the combined company and existing Viacom shareholders will own approximately 39% of the combined company on a fully diluted basis.
Around midday Aug. 16, CBS shares were trading at $43.65, down 10.75% for the week; Viacom stock, meanwhile, was trading at $26.05, down 13.20%.
CBS and Viacom were far from the only U.S. stocks to dip into the red during the week ended Aug. 16. The broader markets tumbled Aug. 14 as an inversion of the U.S. government bond yield curve — meaning the interest rate on a longer-term U.S. debt issue fell below a shorter-term bond — stoked fears of a recession. An inverted yield curve has preceded all nine of the U.S. recessions since the mid-1950s. However, by the end of the week, many stocks had recovered, and the S&P 500 was down 1.12% for the period as of midday Aug. 16.
IPhone-maker Apple Inc. defied the broader downward trend as shares in the company notched gains after the Trump administration delayed sweeping tariffs on a number of Chinese imports, including cellphones and laptops.
The U.S. Trade Representative's Office on Aug. 13 said it would delay a 10% tariff on certain groups of Chinese products until Dec. 15. The tariffs had been set to take effect Sept. 1 for $300 billion of Chinese goods. Beyond phones and laptops, products facing a tariff reprieve include video game consoles, certain toys and computer monitors, along with some footwear and clothing items. However, Apple's AirPods, Apple Watch and HomePod are not included in the temporary suspension and will face the 10% levy Sept. 1.
Wedbush Securities analyst Daniel Ives cheered the tariff delay, saying it removes a major "dark cloud" over Apple's stock in the near-term.
President Donald Trump told reporters Aug. 13, "We're doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers." Trump said any delay beyond Dec. 15 would not be considered.
Apple shares were trading at $206.58 midday Aug. 16, up 2.78% from their Aug. 9 close.
In other news, Snap Inc. shares cratered this week after Wall Street faced some sticker shock over the company's most expensive augmented reality sunglasses yet, dubbed Spectacles 3.
Unveiled Aug. 13, Spectacles 3 is a redesigned version of Snap's video-recording sunglasses that includes two HD cameras to capture depth on photos and videos taken on Snap's Snapchat platform.
The device, which retails at $380 and begins shipping in the fall, is more than twice as expensive as Snap's previous iteration of Spectacles, which sold for $150.
Snap stock was trading at $16.02 apiece around midday Aug. 16, down 5.65% for the week.