You will be redirected back to your article in seconds

Will CBS and Viacom Pull Plug on Merger as Impasse Stretches on?

It appears increasingly likely that merger talks between CBS Corp. and Viacom will end without a deal, at least in the short term. But the end of the formal negotiation process between the boards of both companies won’t bring an end to the corporate soap opera, as both sides will be awaiting the next moves of Shari Redstone, controlling shareholder of CBS and Viacom, and Leslie Moonves, CBS Corp. chairman-CEO.

“The lack of clarity around the combined company’s management structure, and the risk of losing CBS CEO Les Moonves, continue to keep investors out of CBS’ stock. Let’s call the whole thing off?” analyst Michael Nathanson posited in a research note following CBS’ strong first quarter earnings report on May 3. “We think the overhang of a deal with Viacom will continue
to weigh on the multiple [that] investors are willing to pay for the stock until the dust settles.”

The stalemate in the merger talks only intensified last week after Redstone offered an alternative scenario on the management question that remains the biggest obstacle to a deal.

The CBS side continues to be wary of a proposal that would shift Viacom CEO Bob Bakish to a seat on the board of the combined company, with the expectation
that he would eventually succeed Moonves as CEO.

Redstone has been pushing for the two companies to merge and for Bakish to serve as the No. 2 executive to Moonves. That plan has been a nonstarter for Moonves and has complicated the deal talks by putting the focus on personalities rather than dollars and cents.

Redstone’s move was positioned as a concession to break the impasse in the talks. But Team CBS saw it as a strings-attached offer that would put a ticking clock over Moonves’ head if the companies were brought together under his leadership. There is great frustration at what Redstone sees as imperious behavior in Moonves’ reluctance to cede any power to Bakish.

The stalemate that has persisted for the past month has raised the specter of Redstone moving to replace CBS Corp. board members in an effort to clear a path for a deal with Viacom. Such a move would surely spur the exit of Moonves as chairman and CEO of CBS. There is increasing speculation among CBS watchers that Moonves could leave regardless, out of frustration with Redstone’s desire to reunite the companies, which were split up in 2006.

CBS and Viacom in February established special committees of both boards to pursue merger negotiations. Those talks have been difficult, by all accounts, but the sides have made progress on the price tag for a deal. The governance issue has remained the big hurdle.

“The lack of clarity around the combined company’s management structure, and the risk of losing CBS CEO Les Moonves, continue to keep investors out of CBS’ stock.”
Analyst Michael Nathanson

The CBS board and Moonves have insisted that the CBS management team led by Moonves and CBS chief operating officer Joe Ianniello need to be empowered to oversee the integration and operation of the companies. Viacom and Redstone have pushed for Bakish to have the COO role.

From CBS’ view, the prospect of Bakish waiting in the wings to succeed Moonves is a red flag. Some wonder if Redstone may cite the rejection of the Viacom board offer as a reason for a move to more dramatic steps to overhaul the CBS board. Redstone has the voting power to summarily replace CBS board members, although such a move would inevitably invite shareholder lawsuits. Redstone has already exerted influence in bringing Richard Parsons, former head of Time Warner, into the picture as a CBS board member. Parsons, who will be elected to the board at CBS’ annual meeting on May 18, is said to have already been pressed into service in a diplomatic capacity to help improve communication between CBS and Viacom.

Redstone sees the CBS board as being in need of greater diversity and too compliant with Moonves. From Moonves’ perspective, the prospect of Redstone replacing board members would be disruptive and against the interests of shareholders at a company that is performing well despite the challenges in the media landscape.

Redstone sees a larger goal of reuniting CBS and Viacom at a time when media players are looking for the scale and depth that comes with size. Sources close to the situation said Redstone was led to believe that CBS and Moonves were more receptive to the reunion this time around, after a failed attempt in 2016.

The will-they-or-won’t-they uncertainty surrounding CBS and Viacom has been a drag on both stocks — another factor that has made it harder for the sides to come to terms.

“Every indication suggests [CBS and its executives are] executing well and positioning themselves as well as could be expected, given the structurally declining environment they are operating within,” Bernstein & Co. analyst Todd Juenger wrote in a note following CBS’ earnings. “Imagine how different the investor conversation would be (and, we think, CBS stock price would be) if it weren’t for the Viacom situation. But, unfortunately, investors can’t wish that away.”


More Biz

  • Ella Mai

    Ella Mai Signs Worldwide Deal With Sony/ATV Music Publishing

    Singer Ella Mai, who is enjoying a worldwide smash with her song “Boo’d Up” and was nominated for two Grammy Awards last week, has signed a worldwide deal with Sony/ATV Music Publishing. The song peaked at No. 5 on the Billboard Hot 100 and has been streamed more than 650 million times in the U.S. [...]

  • European Union Competition Commissioner Margrethe VestagerSlush

    Liberty Global, Vodafone's $22 Billion Cable Deal Under Investigation by EU

    The European Commission has started an in-depth probe into Vodafone’s proposed acquisition of a raft of Liberty Global assets in Europe. The commission cited concerns that the deal could reduce competition in Germany and the Czech Republic. “It’s important that all EU consumers have access to affordable and good quality telephone and TV services,” Commissioner [...]

  • Kirk Kerkorian

    Kirk Kerkorian's Estate Settles With Widow for $12.5 Million

    The estate of late media mogul Kirk Kerkorian has a reached a settlement with his widow, who claimed she was entitled to a third of his $1.8 billion fortune. Una Davis will receive just $12.5 million under the deal, which is set for court approval on Wednesday. Davis married the mogul in March 2014, becoming [...]

  • Meg Whitman and Jeffrey Katzenberg Strictly

    Variety's Innovate Summit 2018: What We Learned

    New insights into how data collection plays a role in the tech and entertainment spheres were revealed at Variety’s annual Innovate summit held in Los Angeles on Wednesday. Meg Whitman and Jeffrey Katzenberg discussed the exciting future of television designed for mobile phone viewing with their new streaming platform, “Quibi,” an executive from “The Ellen Show” discussed the [...]

  • Capitol Music Group Names Amber Grimes

    Capitol Music Group Names Amber Grimes Senior VP of Global Creative

    Amber Grimes has been named to the newly-created position of Senior Vice President of Global Creative for Capitol Music Group, it was announced today by Chairman & CEO Steve Barnett, to whom Grimes will report. According to the announcement, in her new position, Grimes will be integrally involved in formulating and executing the company’s global [...]

  • Kevin Hart

    Why Kevin Hart's Mea Culpa Was Too Little, Too Late (Opinion)

    Forgive me if this sounds trite or preachy, but the importance of owning up to our mistakes cannot be overstated. Denials, silence, cover-ups, repudiation — all are unacceptable. Media outlets around the globe, including ours, wrote about how Kevin Hart initially took no responsibility for having posted disgusting homophobic tweets years ago that resurfaced when [...]

More From Our Brands

Access exclusive content