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Could CBS-Viacom Strife Cause Leslie Moonves to Walk Away?

What would it take for Leslie Moonves to blink and walk away from CBS Corp.?

The stalemate that has emerged between the company and Viacom in their contentious merger negotiations has raised the possibility of Moonves exiting the picture after 23 years at CBS.

CBS without Moonves is an unthinkable prospect to many inside and outside the company. He has become synonymous with the media firm and is renowned for his hands-on management style. He made his name as a programmer extraordinaire who rebuilt CBS in the 1990s, and then cemented his legacy as an industry titan by deftly steering it through the choppy waters of digital disruption.

But a seismic shift at CBS is becoming more plausible as the gulf widens between CBS and Viacom over the valuation of the latter in an acquisition — and the leadership plan for the combined entity.

Shari Redstone, controlling shareholder of Viacom and CBS along with her ailing father, Sumner Redstone, is bringing the two companies to the table for the second time in less than two years. Neither CBS nor Viacom is running to the altar. CBS’ initial reluctance to strike a deal at a chaotic moment for Viacom forced Shari Redstone to back off the re-merger effort in December 2016. This time around, she sees a fast-changing media landscape and a much more stable situation at Viacom. By multiple accounts, Redstone is unhappy with the way the CBS-Viacom talks have played out in the past few weeks, with deal details leaking out via media along with healthy doses of spin.

CBS’ opening all-stock offer on March 30 came in at just below Viacom’s market cap, on the rationale that the premium for Viacom shareholders was already baked into the stock price’s recent run-up from M&A speculation. Viacom responded by asking for a stock-swap ratio that would add another $2.8 billion to the Viacom valuation and keep Viacom CEO Bob Bakish at the combined company as president and chief operating officer under Moonves, who would serve as chairman and CEO.

CBS has made clear its view that Moonves needs to keep intact his proven team of lieutenants, anchored by chief operating officer Joe Ianniello, if the merger is to be successful in the long run.

Redstone’s insistence on keeping Bakish in the mix is a sign of her faith in the turnaround plan for Viacom he has established in his nearly 18 months at the helm. The two, by all accounts, have a strong working relationship. While Redstone has been a vocal supporter of Moonves in her role as vice chair of both CBS and Viacom, the relationship has become strained by the latest round of merger negotiations. Moonves has had a good deal of autonomy in leading CBS Corp. since 2006, whereas Redstone was instrumental in Bakish’s promotion to CEO in December 2016.

As president of the National Amusements holding company that controls nearly 80% of voting power in both companies, Redstone has the authority to bring changes to the CBS Corp. board of directors if the impasse over the Viacom acquisition persists. Redstone proved her ability to meticulously reshape the Viacom board in 2016 amid the embarrassing legal battle with former Viacom CEO Philippe Dauman over control of her father’s estate. Redstone, according to sources close to the situation, has let it be known that she has concerns about the board governance of CBS and what she perceives as its sometimes overly cozy relationship with Moonves.

Evidence of new blood coming to the board was demonstrated April 6 when CBS disclosed that Richard Parsons, former Time Warner CEO, has been nominated to serve on the CBS board, replacing longtime board member Arnold Kopelson. That news came as part of the annual proxy statement that disclosed Moonves’ sky-high compensation of $69.3 million for fiscal 2017. Parsons could be the first of a number of prominent new faces on the CBS board.

Sources close to Redstone maintain that any board changes would be focused on ensuring that the CBS board has a high level of independence and expertise. But the scrutiny has raised the hackles of CBS leaders given the company’s strong track record since it was separated from Viacom in 2006.

All of this adds up to poison in the water for the key players if a CBS-Viacom transaction is to come to fruition. While the bidding process between the special board committees established by CBS and Viacom is expected to play out for at least a few more days, the obstacles and the animus seem to be growing.

If the special committees can’t come to terms and the merger talks end, sources close to the situation doubt that Redstone will back down for good. Which raises the question of how long Moonves would be willing to endure a public struggle after such a storied run. Sources close to Moonves say the CEO, known for his competitive zeal, is surprised and saddened that the negotiations have unfolded in such a messy way. With CBS’ annual shareholders meeting scheduled for May 18 in New York, things could get still messier before they get clearer.

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