UPDATED: CBS Corp. has formally submitted a takeover bid for Viacom, according to sources familiar with the situation. The special committee established by the CBS board to pursue a possible acquisition is believed to have made the all-stock offer late last week to Viacom’s corresponding special committee, setting the stage for tough negotiations over the valuation of Viacom assets and management structure of the combined companies.

The ratio of CBS-for-Viacom stock offered in the deal is said to value Viacom at around $12.3 billion-$12.5 billion. That’s where Viacom’s market cap stands as of Tuesday afternoon after the stock took a 3.7% hit on Tuesday following reports that CBS would make a low-ball bid for Viacom in light of the company’s recent struggles and the sector-wide challenges of the U.S. cable TV business, which is the big driver of earnings for Viacom.

The CBS bid also proposes a management structure with Leslie Moonves serving as chairman-CEO of the combined firm and his key lieutenants, notably CBS chief operating officer Joe Ianniello, remaining in their posts. That is expected to be a source of friction as Viacom directors are expected to push for a larger role for Viacom CEO Bob Bakish.

Now that CBS has submitted its initial proposal, the ball is in the court of the Viacom special committee to respond. Sources close to the situation have been vocal about the objection at the company to a below- or at-market price from CBS, which like Viacom is controlled by Sumner Redstone’s National Amusements. Shari Redstone, vice chairman of CBS and Viacom and president of National Amusements, has been the spur for the companies to reunite, 12 years after the two were split up by her father.

Sources cautioned that the initial offer was just the opening salvo and the real give-and-take of negotiations between the companies has yet to begin.

Reps for CBS and Viacom declined to comment.

PREVIOUSLY: Shares in CBS Corp. and Viacom were on the move in different directions Tuesday as the companies prepare to engage in what are sure to be arduous acquisition talks.

A report Monday by Reuters that CBS intends to make a low-ball all-stock offer for Viacom — valuing the company below its current market cap of about $12 billion — sent CBS shares higher and Viacom shares lower in early trading Tuesday. Meanwhile, CNBC reported Tuesday that another sticking point in the talks will be the management hierarchy for the combined company under CBS chairman-CEO Leslie Moonves. It’s no secret that Moonves favors keeping his current chief operating officer Joe Ianniello in the No. 2 position while Viacom’s board is pushing for a big role for Viacom president-CEO Bob Bakish.

The volatility in the situation has divided Wall Street observers about the likelihood of a deal coming together and whether a reunion of the companies that are both controlled by Sumner Redstone’s National Amusements are better off together or staying separate. The certainty that the negotiations between the Viacom and CBS boards will be difficult has also raised the prospect of the tables turning with Viacom making an all-stock offer for CBS.

Sources close to the situation confirmed that there is a big gulf between the valuation view of the two companies. CBS sees the premium for Viacom already baked in to its current stock price, which began to rise late last year on M&A speculation. Viacom sources are equally adamant that a below-market offer is a non-starter.

In a research note sent Tuesday, Needham & Co. analyst Laura Martin argued that a low-ball starting point is good for CBS shareholders overall for several reasons:

“A) It doesn’t pay (Viacom) as much for upside CBS will create; B) It makes it less likely that CBS will buy (Viacom), thereby potentially luring back investors who preferred CBS when
it was a pure-play broadcaster; C) If Shari Redstone wants to see these two companies together, we think that a low-ball bid would increase the likelihood that (Viacom) will buy
CBS instead; and D) It adds credibility with Wall Street because a low purchase price supports CBS’s claim that it doesn’t need more scale to win,” Martin wrote.

As the close of trading Tuesday, Viacom shares were down 3.7% to $29.42 while CBS shares were up 4.2% to about $52.86.

John Janedis of Jefferies argued that a low-ball opening offer from CBS would likely make it “very difficult to consummate a deal.” Moreover, he raised the speculation of other bidders coming forward for one or both companies. “It will be interesting to see to what extent a stalemate could translate to other potential bidders for either asset,” he wrote.

A research note from analysts at Barclays also pointed to the bigger-picture issues that the companies still face even if a transaction comes together.

“However, we believe the potential deal is unlikely to be the end state as the deal does not really address any of the core challenges faced by the two companies,” Barclays wrote. “In our view, the core challenges faced by most media companies are distribution and balance sheet scale to enable pivoting towards new business models. Therefore, we believe there is likely to be another step if the two companies combine, which could result in CBS/Viacom becoming part of a bigger entity.”