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Viacom to Officially Explore Merger With CBS

Matt Furman Shari Redstone

Shares of Viacom and CBS trade lower today than they did three years ago.

by Paul Bond Georg Szalai —

Viacom and CBS have made their courtship official.

On Thursday, the sister companies, both controlled by Sumner Redstone and his family via their ownership of National Amusements, said they will explore a merger.

Both Viacom and CBS said in regulatory filings that their boards of directors have established special committees of independent directors to evaluate a combination of the companies, which were split from each other 13 years ago.

Shari Redstone has long advocated merging the two back together again, but insiders say CBS CEO Leslie Moonves has balked at the notion. Investors in both companies might be itching for something dramatic to happen, and quickly, as shares of both trade lower today than they did three years ago despite a bullish market for stocks overall.

After the closing bell Thursday, when CBS and Viacom disclosed their intentions, neither stock moved much, suggesting Wall Street has already factored the possibility of a merger into shares of both companies.

“There can be no assurance that this process will result in a transaction or on what terms any transaction may occur,” both CBS and Viacom said Thursday.

National Amusements, meanwhile, said it “supports the processes announced by CBS and Viacom to evaluate a combination of the two companies, which we believe has the potential to drive significant, long-term shareholder value.”

Viacom and CBS are likely feeling the pressure to grow fast, as Disney will do when it purchases most of 21st Century Fox and as Time Warner will do when it is absorbed by AT&T.

If Viacom were to merge with CBS, the combined company would boast $27 billion in annual revenue, with 40 percent coming from advertising, 30 percent from affiliate fees and 30 percent from content and some smaller segments, UBS analyst John Hodulik said on Thursday.

 


Shari Redstone’s Viacom-CBS Merger Plans Take Shape Amid Tension

The mogul faces a delicate negotiation with CBS CEO Leslie Moonves, who wants to be at the helm of the united company.

It’s a scenario that would have been unthinkable a year ago: a Viacom-CBS merger without Leslie Moonves at the helm. Yet insiders at both companies found it imaginable in recent days as Shari Redstone, faced with a time of breathtaking change in the industry, maneuvers to reunite the houses that her father divided in 2005.

The inconceivable seemed possible after The Wall Street Journal published a Jan. 17 article saying that Redstone was “advocating for new blood” on the CBS board and was “dissatisfied” with succession strategy and “a general lack of long-range strategic planning” at the company. Those were fighting words, and CBS executives could only conclude that the “people familiar with the matter” cited as sources were Redstone surrogates.

The message seemed clear: Redstone, 63, feels it is imperative to move toward merger, and if Moonves, 68, isn’t willing to make it happen, he might be deemed expendable. “The Journal story was a shot across the bow: ‘We’re doing this with or without you,’ ” says one Viacom insider. Anyone with any sense of Moonves knows how staunchly he has guarded his prerogative to run his company free of interference. The strategy of firing across the Moonves bow, a CBS insider retorts, “shows no awareness of how Les is and no awareness of who needs who.” (Spokespersons for Redstone, Viacom and CBS declined to comment.)

Whether Redstone truly is prepared to part ways with Moonves, who is considered by many to be the best creative executive in the business and who received $69.6 million in compensation in 2016, is not yet clear. For now, there has been some effort to pour oil on the roiling waters as sources close to both Redstone and Moonves are letting it be known that the two had a splendid time together at the Jan. 21 AFC title game.

There is much to be worked out before a lasting peace can be declared, but what no one doubts is the urgency of merging CBS and Viacom. What was anxiety-producing when AT&T offered to buy Time Warner in October 2016 became outright terrifying when Rupert Murdoch decided to sell most of his entertainment assets to Disney in December. “Scale” has become a watchword for Redstone, and observers say even a recombined CBS-Viacom may not be big enough to compete. Wall Street analyst Rich Greenfield sees the recombination as “step one of a multi-step process,” and sources say Redstone’s determination to get a deal done intensified when Verizon started to sniff at CBS.

There is no world in which CBS could make a deal and leave Viacom to struggle on its own; if there is to be a sale, in other words, CBS and Viacom will come as a package. (Verizon CEO Lowell McAdam said Jan. 23 that “there is nothing going on right now with us considering a large media play,” but he didn’t slam the door. And a CBS-Viacom merger would — or will — take months to complete.)

It’s easy to imagine that Redstone harbors some resentment toward Moonves for rebuffing her in late 2016 when she — having won a hard battle to wrest control of Viacom from the disastrous leadership of Philippe Dauman — tried to reunite the company with CBS. The issues then were the same as the issues now: financial terms and governance — and not in that order. For Moonves, the priority was having undisputed control of the combined companies. He was wary that Redstone might not be willing to give that to him, with good reason. “Shari definitely didn’t want to give up control of a company she fought so hard to get, even if it was to Les,” says a Viacom veteran.

At the time, it seemed clear that handing the keys to Moonves was the only sane choice. The trend for broadcast networks generally was not good, but in a November 2016 earnings call, Moonves touted the highest quarterly earnings per share in the company’s history. Viacom had been so debilitated by years of bad management as Sumner Redstone’s health declined that there was concern CBS shareholders would sue for saddling the more successful company with such a troubled one. Moonves may even have doubted that Viacom could be saved. The deal did not make.

Viacom CEO Bob Bakish has had a year to prove Shari Redstone’s confidence in him was not misplaced. And it seems he has succeeded — Shari installing Jim Gianopulos at Paramount and rebranding Spike as the Paramount Network — despite the company’s stock continuing to lag behind where it was even in the dog days of Dauman. He’s also won Greenfield’s confidence. “There is no doubt [Bakish] needs far greater scale, but he’s done a lot to reframe the Viacom story,” he says.

Greenfield believes Bakish has lifted morale and made the company a place that can attract good executives. “People feel like they’re working for a player-coach versus a king sitting in an ivory tower,” he says. Yes, that is a swipe at Moonves, who Greenfield says may be the best there’s ever been at programming a broadcast network at a time when broadcast networks are on the road to obsolescence. “Netflix will spend $8 billion on programming next year,” he says. The broadcast networks “are all screwed. All you need is Amazon buying Monday Night Football, and the last pin holding all of this together is gone.”

Many others disagree — vehemently. Generating profitable programming is a specific skill, they argue, regardless of the pipeline. “A public, disgruntled exit of someone like Leslie Moonves could destroy as much equity value as the combination is intended to create,” warns Steven Cahall, analyst at RBC Capital Markets. Even a veteran of Viacom concurs and says handing control of the combined company to Bakish would be “a giant mistake.”

Bakish has shown loyalty to [Redstone], but I don’t know what else he’s accomplished,” he says. “I understand the idea of saying he’s like a coach. He’s supportive and helping rebuild morale. That’s all adorable, but who is the person responsible for coming up with hits?” And morale-building is likely to face a setback, as sources say major layoffs are coming soon at Viacom.

Now, a delicate negotiation is underway between Redstone and Moonves, but the outlines of a way forward have emerged. Moonves is prepared to accept Bakish in a major role at a combined company, sources say, and Bakish is prepared to report to Moonves. But a CBS veteran believes that any peace between the two won’t last.

“Let’s assume Les is able to position it as he is the chairman and Bakish is the number two,” he says. “Les will then proceed to kill Bakish in every way he can. He’ll undermine him with Shari and the board. He’ll undermine him with management. My money is on Les buying time now and then — it may be a year, maybe longer — Les will be the last man on the island.”

 


The Hollywood Reporter


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