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Is CBS Ready to Make a Deal in Viacom Merger Saga?

CBS has the next move in the battle over its future and that of its corporate sibling, Viacom.

The drama surrounding the media companies controlled by Sumner Redstone’s National Amusements has become the industry’s favorite soap opera. CBS is expected to quietly engage with Viacom in the coming days on a new round of negotiations in response to the acquisition counteroffer Viacom submitted last week. CBS and Viacom have been wrangling since February on a merger agreement at the behest of Shari Redstone, National Amusements president. She has been urging the companies to reunite due to tectonic shifts in the media industry.

It’s believed that CBS will raise the valuation of Viacom from its opening March 30 offer, which came in at around $12 billion, a touch below Viacom’s market cap as it stood on that day. Viacom’s counteroffer sought a higher stock-swap ratio that would add about $2.8 billion to its valuation.

However, CBS is not expected to budge on the issue of keeping CBS chairman-CEO Leslie Moonves’ current top executive team intact. CBS envisions the combined company as being led by Moonves, with Joe Ianniello (currently COO of CBS) as president and COO. Viacom has pushed for its CEO, Bob Bakish, to be No. 2 at the combined company under Moonves. It’s unclear if there has been any back-channel effort toward finding a third way around the management issue, which appears to be the biggest impediment to reaching an agreement.

At one point last week there was a flurry of speculation about something that would have been unthinkable just a few months ago: Moonves exiting the picture at CBS. Shari Redstone was rumored to be ready to force Moonves out as CEO if the CBS-Viacom deal doesn’t come to pass. The temperature dropped after National Amusements issued a statement voicing its “tremendous respect” for Moonves and the expectation that he will run the combined company.

The stakes were also raised after Bloomberg tackled the hard math of calculating the value of Moonves’ parachute if he were to leave. Bloomberg put it at about $187 million in stock awards, promised bonuses and perks. The value of the package could rise to $280 million depending on how CBS shares perform over the next few years.

Moonves’ high annual salary and severance deal could become a point of contention if Redstone uses her voting power to replace members of the CBS board of directors if that board does not find a path to a deal. At the same time, such a move would invite criticism and shareholder lawsuits against Redstone under the rationale that she would be replacing directors merely because they disagreed with her desire to recombine CBS and Viacom, and that the loss of Moonves would hurt CBS’ overall value in the short term.

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