By Jessica Toonkel and Sai Sachin R
(Reuters) - Viacom Inc (O:VIAB) is considering selling a "significant" minority stake in its Paramount Pictures movie studio, Chief Executive Philippe Dauman said on Tuesday, sparking a brief rally in the media company's shares.
Viacom has been approached by several strategic investors and has retained PJT Partners as its financial adviser, Dauman said at a media conference.
Dauman, who took over from 92-year-old majority-owner Sumner Redstone as executive chairman earlier this month, has faced criticism of his leadership and went on the defensive after Viacom missed Wall Street earnings estimates for the fifth straight quarter.
Investors, who have been pushing for Viacom to sell all or part of the movie studio as the company faces weak ad sales, poor ratings and a lack of hit movie releases, applauded the announcement. Given how undervalued Paramount is, it makes sense to sell a minority stake rather than the whole company, they noted.
"If they can monetize some minority interest in this, it could be a relatively big number which would go a long way toward helping the stock price recover," said Salvatore Muoio, whose firm, S Muoio & Co LLC, is Viacom's 10th biggest voting shareholder.
Viacom shares rose as much as 7 percent on Dauman's statement, before paring gains to 0.7 percent at $37.12 in afternoon trading. The stock has tumbled 47 percent in the past 12 months and 10.5 percent this year through Monday.
Sanford C. Bernstein analyst Todd Juenger on Monday valued a sale of all of Paramount at $4 billion. It was unclear what size stake Viacom would sell.
Investors and analysts speculate that a Chinese firm is a likely buyer, given how much interest Chinese investors have shown in such assets. In January, Chinese property and investment firm Dalian Wanda Group agreed to acquire a majority stake in Legendary Entertainment, valuing the U.S. movie studio company at $3 billion to $4 billion.
Mario Gabelli, the second-largest owner of Viacom voting shares, has said he would like the media company to sell Paramount, suggesting that Alibaba Group Holding Ltd (N:BABA) as a good partner. Activist investor Eric Jackson, whose firm SpringOwl Asset Management has a small stake in Viacom, has also called for Viacom to explore selling a stake in Paramount to Alibaba or Amazon (O:AMZN), which is developing movies and shows for its Prime streaming video service.