The tension level in CBS and Viacom merger discussions has spiked dramatically during the past 48 hours as the sides stake out their positions on the valuation of Viacom and management plans for the combined company.
The special committee of the Viacom board is said to have rejected outright the acquisition bid submitted by CBS’ special committee on Friday, although that has yet to be communicated in a formal way to CBS. CBS’ initial offer valued Viacom at around $12.5 billion, meaning no premium over its current market cap, and proposed that CBS chairman-CEO Leslie Moonves and CBS chief operating officer Joe Ianniello run the combined entity. CBS is now awaiting a formal counter-proposal from Viacom’s special committee, which is expected to come by the end of this week, if not sooner.
The future of Viacom CEO Bob Bakish is a big point of contention. The key player in steering the future of Viacom and CBS — controlling shareholder Shari Redstone — is said to be dismayed at the lack of a role for Bakish in CBS’ initial proposal. Moreover, there has been finger-pointing on both sides about the aggressive spin game underway as the CBS and Viacom camps seek to make their cases to Wall Street analysts and business media outlets.
The swirl of activity around the companies has been reflected in the share prices for both. Viacom’s stock price took a hit on Tuesday but was up 3.9% at the close of trading Wednesday to $30.57. CBS gained 1.7% to close at $53.79, which followed a 4% gain on Tuesday.
According to multiple sources, the tone of the discussions has taken a turn this week. Moonves and Redstone, who is vice chair of CBS and Viacom, were said to have been in regular discussions during the past few weeks. Bakish is said to have made a presentation about Viacom’s fundamentals and long-term strategy late last week to CBS’ special committee that was well received.
But the posture on both sides has changed following the initial CBS offer. Redstone has sought to bring the two companies back together again in an effort to bulk up both entities at a time of consolidation and rapid change in media and entertainment. CBS and Viacom were merged together by Redstone’s father, Sumner Redstone, in 2000 but split up again in 2006.
From CBS’ perspective, the key to making a re-merger work is executing on the fundamentals: content monetization strategies, programming and affiliate deals for Viacom’s cable networks, and improving the profit picture and box office track record at Paramount Pictures. To do so, Moonves wants to keep the same team intact that has allowed CBS to thrive despite numerous challenges facing its core broadcast business.
Moonves has a storied track record of taking CBS to new heights in the nearly 25 years since he joined the company as entertainment president in 1995. Ianniello has been with the company since 2000, when it was still part of Viacom. In his role as COO, he oversees dealmaking for the content licensing and distribution pacts that fuel CBS’ earnings. All of that experience makes him well positioned to steer the same efforts for the combined company, in CBS’ view.
From Viacom’s perspective, Moonves is overplaying his hand in failing to carve out a role for Bakish. There is concern that Viacom’s core cable and film businesses have differences from CBS that make the input of Bakish, a 20-year Viacom veteran, and other senior leaders vital to navigating an uncertain future.
Despite Moonves’ strong run, Shari Redstone is known to have worries about some corporate governance issues at CBS as well as Moonves’ sky-high rate of compensation, and the state of CEO succession planning at CBS. Those concerns have been magnified by the strain of the merger talks and the fact that CBS had to be dragged to the altar with Viacom. One source close to the situation said relations between Moonves and Redstone have remained cordial, but others say Redstone is unhappy with the handling by Moonves and his team of the merger talks. Redstone’s frustration on that score has been building since she last attempted to bring the two companies back together in late 2016. That effort that was short-lived in part because Viacom was still in the throes of the chaos from the ouster of Philippe Dauman as CEO, a transition meticulously orchestrated by Redstone as Viacom’s fortunes plummeted.
Adding to the tension in the air is the fact that both camps have privately accused the other of leaking details of the talks to the media in an effort to shape the narrative of the deal, or the lack of one if the respective boards can’t come to terms.
(Pictured: Shari Redstone, Bob Bakish, and Leslie Moonves)