A reunion for CBS Corp. and Viacom remains elusive even as word surfaced Friday that Shari Redstone has offered an alternative scenario on the management question that remains the biggest obstacle to a deal.
Sources close to the situation said the CBS Corp. side remains wary of a proposal to have Viacom CEO Bob Bakish shift to a board seat on the combined company with the expectation that he will eventually succeed CBS Corp. Leslie Moonves as CEO.
Redstone, who is controlling shareholder of CBS and Viacom, has pushed for CBS and Viacom to merge and for Bakish to serve as the No. 2 executive to Moonves. Word of Redstone’s offer was first reported Friday by Reuters.
The stalemate that has persisted for the past two weeks 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 that were split up in 2006.
A source close to the situation said that in the short term, it appears increasingly likely that the merger talks will end without a deal. However, that won’t bring an end to the corporate drama as both camps would still be awaiting a next move from Redstone and from Moonves.
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 process on the pricetag for a deal. But the governance issue has remained the big hurdle.
The CBS board and Moonves have asserted that the CBS management team led by Moonves and CBS COO 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. Both sides see the other as being irrational as both dig in their heels.
CBS stock spiked 9% in trading Friday. The stock was up earlier in the day on the heels of CBS’ strong first-quarter earnings report on Thursday, but it shot up further after word of the Bakish board offer was reported in the afternoon. Redstone supporters point to the stock jump as a sign that Wall Street is supportive of a merger.
The two camps also have fundamentally conflicting visions of the future, from a management and strategic standpoint. Sources note that even if there is a path to bringing the companies together under Moonves, the water is poisoned in the sense that employees on both sides are well aware of the reluctance and rancor in the merger process.
From CBS’ view, the prospect of Bakish waiting in the wings to succeed Moonves is a big red flag. Some wonder if Redstone may cite the rejection of the 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 serve in a diplomatic capacity to help improve communication between CBS and Viacom.
Redstone sees the CBS board as being 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.
From Redstone’s view, Moonves is allowing his personal preference of positioning Ianniello as his successor to stand in the way of the larger goal of reunited CBS and Viacom at a time when media players are looking for scale and depth that comes with size. CBS and Viacom are among the smallest of their Big Media peers. But CBS has been cool to the idea given its strategic focus during the past decade of driving top-dollar deals with MVPDs for just a handful of channels, anchored by the CBS mothership. Viacom, on the other hand, has two dozen cable channels and has been facing affiliate fee rate resets from major distributors. The company’s fortunes have improved under Bakish’s leadership during the past 18 months, as evidenced in Viacom’s latest earnings unveiled April 25.
Reps for CBS and Viacom declined comment. A rep for Shari Redstone could not immediately be reached for comment.
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