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Revival of CBS-Viacom Merger Talk Sows Tension Within Redstone Empire, Again

Chatter about Shari Redstone revving up an effort to recombine Viacom and CBS Corp. is sowing tension within both companies.

CBS insiders were aghast at a report in the Wall Street Journal Wednesday citing Redstone’s concern about a lack of long-term strategic planning at the Eye and the level of independence among its board members.

Meanwhile, Viacom executives are once again nervous about the potential for consolidation with CBS to bring wholesale changes to the management of the company, particularly the cable networks division. The sentiment among insiders is that things have only just started to settle down after a year of turmoil in 2016, before Bob Bakish was named permanent CEO in December of that year.

“Here we go again,” said an executive at Viacom’s cable division.

Sources at both companies expressed surprise and frustration that the first stirrings of a re-merger effort are emerging through media reports rather than through the board room. A rep for Redstone declined to comment.

Redstone, who is vice chairman of Viacom and CBS, went public with her desire for the companies to reunite in the fall of 2016 but ultimately backed down after pushback from both boards on questions of price and governance. At that time, Viacom was on the ropes after a months-long legal battle between controlling shareholder Sumner Redstone, Shari Redstone and former Viacom CEO Philippe Dauman.

CBS and Viacom were first brought together by Sumner Redstone in 2000. But six years later, the mogul opted to re-divide the companies into separate entities. At the time, Redstone said he thought it would help both companies realize their true valuation from the market. Shari Redstone is on record as having opposed the split back in 2005.

The $52.4 billion deal unveiled last month by Disney to acquire 21st Century Fox has quickly heightened pressure on smaller media conglomerates like CBS Corp. and Viacom to bulk up or be seen as a takeover target. The Redstones’ tight control of CBS and Viacom has frustrated past efforts for CBS Corp. chairman-CEO Leslie Moonves to engage in merger conversations with prospective partners such as Time Warner, Lionsgate and more recently, Verizon.

It’s understood that Shari Redstone has insisted Viacom be part of any M&A conversations involving CBS. That’s a big hurdle for suitors who might be interested in CBS’ broadcast assets and its vast library of TV shows.

Viacom’s biggest drawback is its reliance on the MTV Networks division as its engine of earnings and profits. Not only are the core Viacom cablers (MTV, Nickelodeon, Comedy Central) facing ratings challenges, as is every other traditional TV outlet, but it’s clear that Viacom will have to shed some of its lower-profile channels in the coming years. How to put a price on those lesser channels today, given their steadily diminishing value, was a big part of the obstacle to re-merger discussions in 2016.

The coolness from top brass at CBS to a deal with Viacom has been palpable. It’s seen as a rescue effort for Viacom, which is still battling tough forecasts of declining affiliate and advertising revenue for its cable networks in the coming years. Viacom is also still in the early stages of a management turnover at Paramount Pictures, which hemorrhaged red ink during the previous three years.

CBS, on the other hand, has ridden the boom in content licensing to a series of record quarters. In March 2016, CBS laid out a five-year strategic plan at a daylong investor presentation in which it cited content licensing, international expansion, retransmission consent revenue, and new streaming platforms including CBS All Access and Showtime as pillars of its growth plan.

The Eye committed at that presentation to deliver 8 million OTT subscribers by 2020; last August, Moonves said CBS All Access and Showtime’s standalone streaming service were more than halfway to that goal. Retrans revenue, a big driver of profits, is projected to hit $2.5 billion annually by 2020.

On the international front, CBS has expanded Showtime’s reach in key foreign markets for the first time during the past two years, and it also swooped in on the fire sale of Australia’s Network Ten in November.

The level of detail that CBS laid out in 2016 and the progress reports delivered since then were cited by multiple CBS sources who were outraged by the reference to a lack of long-term planning in the Journal report, which cited multiple sources familiar with Redstone’s thinking.

The reported drive by Redstone to find replacements for some of CBS’ board members also rankled insiders, given the prominence of independent directors such as former Bank of America chairman Charles Gifford, former senator and Defense Secretary William Cohen, former NAACP president Bruce Gordon, and Harvard Law School dean Martha Minow. CBS typically holds its annual meeting in May. It’s unclear how many directors will be up for re-election at that time.

Sources said there is consternation within CBS over fears that tension between Moonves and Redstone could be destabilizing overall for the company. Sources close to the situation said that as of Wednesday, there have been no formal steps to initiate merger talks between the two boards.

(Pictured: CBS Corp. chairman-CEO Leslie Moonves, CBS and Viacom vice chairman Shari Redstone)

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