NEW YORK — Sumner Redstone is stepping off the roller coaster.
CBS on Monday made good on its pledge to sell its theme-parks biz, announcing that it will pocket $1.24 billion in cash from Ohio amusements firm Cedar Fair for the division.
Unit, which controls parks such as King’s Dominion in Virginia and Great America in California, generated about $420 million in revenues last year. The strong numbers helped CBS fetch the impressive sales price, prompting Wall Streeters to applaud the deal.
While CBS’ stock inched up only 5¢ by Monday’s close, analysts endorsed a sale they said will generate an unexpectedly large amount of cash.
Jessica Reif Cohen of Merrill Lynch issued a report titled “Divesting Parks for a Very Good Price” and noted that the pricetag came in at more than 10 times projected earnings. Merrill Lynch maintained a target for CBS shares of $33 — a chunky 30% higher than the current price.
Cedar Fair, which already owns parks such as Southern California’s Knott’s Berry Farm, was also greeted well on the Street, as its stock rose 2%.
Move fits with the theme that topper Leslie Moonves has lately hammered at: CBS is a content company that will draw coin from new forms of distribution, not other kinds of businesses. The company’s suddenly ascendant outdoor ad biz, which saw income nearly triple last quarter, remains one of the few possible exceptions.
Paramount Parks had increased revenue about 12% in the most recent quarter and was considered a relatively healthy business. But theme parks generally run a higher ratio of risk to reward, capable of earning high margins but also subject to the fluctuations of factors like weather and gas prices.
That old-world focus does have its advantages: As Disney chief financial officer Tom Staggs recently said, the theme-park biz “isn’t suddenly going to get digitized.” Disney saw attendance at its domestic parks rise 9% in the first quarter, and company has found a way to make parks not only a nice addition to the bottom line but a form of brand reinforcement whose benefits trickle down to the studio and to networks.
The Weinstein Co.’s Harvey Weinstein recently joined the Six Flags board in a move that he proudly said “puts us in the theme-park business.”
Viacom, however, was less nimble at turning rides into ad vehicles for its film properties (and vice versa). The sale reflects a rejection of the pre-iTunes wisdom that trademark is king and a conglom can rake in dollars by simply owning a handful of characters it then deploys to everything from roller coasters to TV programs.
It also reduces the reach of Redstone’s empire. What was once a sprawling monolith is now two companies with much tighter portfolios — cable nets and a movie studio on one side, television and radio programming on the other.
And with the cash, CBS has significantly more financial flexibility. A company spokesman suggested that the money would be used primarily for shareholder-related gifts — another increase of its dividend, possibly, and the more remote likelihood of a stock buyback down the road.
The company is likely to get even more money when it sells some radio stations later this year, as Moonves has hinted he’d do.
Moonves has also announced he’d be open to small acquisitions that are closely related to its core business, which means the money could embolden the conglom to make a purchase.