Sumner Redstone’s National Amusements Proposes All-Stock Viacom, CBS Merger

National Amusements Proposes All-Stock Viacom, CBS
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Sumner Redstone’s National Amusements holding company has formally asked the boards of Viacom and CBS Corp. to consider an all-stock merger proposal.

National Amusements sent a letter Thursday morning to board members of both companies, which are controlled by Redstone.

The move had been expected after months of maneuvering at Viacom and signals in recent weeks that Redstone and his daughter, Viacom and CBS vice chairman Shari Redstone, were eyeing a recombination of the companies that merged in 2000 but were split up in 2006.

The letter makes it clear that National Amusements is not open to considering merger offers with outside companies for either Viacom and CBS Corp., a statement that essentially shuts down alternative M&A growth scenarios for both companies. There has been increasing chatter about the potential of a CBS Corp. – Time Warner tie-up, but Redstone’s letter quashes that prospect, at least for now.

A big part of the impetus to bring the two back together is to tap into the CBS Corp. leadership team headed by chairman-CEO Leslie Moonves. Viacom at present is recovering from months of management turmoil capped by the ousting this month of chairman-CEO Philippe Dauman. The company’s core assets — namely Paramount Pictures and cable nets including MTV, Nickelodeon and Comedy Central — are struggling with industry headwinds and particular programming challenges.

CBS on the other hand is a Wall Street darling for its success with content production and adapting its distribution strategies in the digital era. As rumors about the re-merger effort have increased, Moonves and CBS have been cautious in statements about the prospect of the reunion.

“CBS is in receipt of the letter, and its management and independent directors will take appropriate action to evaluate what is in the best interest of the company and its shareholders,” a CBS spokesman said.

Viacom said it expects to form a special committee of its independent directors to consider the proposal. National Amusements said that CBS and Viacom board members Sumner Redstone and Shari Redstone would not vote on any merger proposals because of their dual roles as CEO and president, respectively of National Amusements. CBS Corp. board member David Andelman will also not vote on any merger issues because of his role as a trustee of the Redstone family trust that will inherit Sumner Redstone’s controlling shares in Viacom and CBS after his death.

Marci Ryvicker, media analyst at Wells Fargo Securities, echoed the cautious sentiment in a research note issued Wednesday as anticipation grew for National Amusement’s move. She sketched out a few possible scenarios for a deal.

“Given that CBS has been invited to the decision-making party, we are even more comfortable that whatever decision is reached will be in the best interest of CBS shareholders -whether that is: 1) levering (Viacom) to purchase CBS at a premium (Les has talked about a $100/share sales price before, which would be some pretty nice upside), 2) CBS purchasing (Viacom) at a discount, or 3) CBS concluding that nothing can be done; therefore it will remain independent.

Michael Nathanson, media analyst for MoffetNathanson and longtime Redstone-watcher, has been calling for the re-merger for months.

“Today’s news represents the next chapter in a story that in our minds should have never occurred to begin with.  We have long argued for the compelling logic of putting Viacom back together with CBS,” Nathanson wrote in a note Wednesday. But he acknowledged that it faces an uphill climb at CBS’ Black Rock headquarters: “While the idea could be seen as a no-brainer for Viacom and National Amusements, CBS has repeatedly objected to the concept.”

(Pictured: Sumner Redstone and Leslie Moonves)

Here is the complete letter from Sumner Redstone:

Members of the Boards:

We believe that a combination of CBS and Viacom might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape.

As a result, we would like both companies’ boards to consider a potential combination of the companies. Our tentative view is that the optimal structure would be an all-stock transaction in which the stockholders of each company would receive shares in the combined company of the same class as they currently hold.

We therefore request the board of each company take the appropriate steps to consider the proposed transaction. We believe that any transaction should be the result of full and fair deliberation and negotiation, and that any transaction would proceed only if it is approved by each board. None of Sumner M. Redstone, Shari E. Redstone or David R. Andelman will vote as directors on the consideration of this matter by either company’s board, and none will participate in any of the related deliberations.

To avoid any doubt, National Amusements is not willing to accept or support (i) any acquisition by a third party of either company or (ii) any transaction that would result in National Amusements surrendering its controlling position in either company or not controlling the combined company. We believe moving forward expeditiously, but with due care, is important and we are prepared to be of assistance to the two companies as they explore this possibility.

Thank you.



By: /s/ Sumner M. Redstone

Chief executive officer

Shari E. Redstone