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Wall Street Uneasy Over CBS in Wake of Leslie Moonves Allegations

Allegations being made about longtime CBS CEO Leslie Moonves have raised eyebrows across the media and entertainment industries. On Wall Street, they have lowered the price of the company’s shares of stock.

That’s because many analysts expect Moonves to be distracted by an investigation into accusations of sexual misconduct by six women detailed in a report in The New Yorker. “All allegations of personal misconduct are to be taken seriously,” CBS’ independent board members said in a statement Friday. The board of directors also voiced “full support” for the CEO and his current management team. CBS shares on Friday fell more than 6%, or more than $3.50 per share.

Analysts are prepared for the issue to linger for some time. “This definitely can not be good news for CBS,” says Tuna Amobi, a media analyst with CFRA Research in New York. “This is going to create some kind of cloud, with all the larger concerns out there,” he added, referring to the “MeToo” movement that has sought justice for people subjected to sexual harassment and has forced a number of prominent media-industry executives from jobs. “If precedent is anything to go by, I think you could see this issue continuing to linger. Who knows what’s going to happen?”

The scrutiny rises as Moonves is leading CBS on two fronts. The company is locked in a power battle with its controlling shareholder, National Amusements Inc., the movie-exhibition chain led by Shari Redstone. NAI had proposed merging CBS and its other entertainment-industry holding, Viacom. The two sides cannot find common ground. That conflict is supposed to come to a head in October, when both sides present their case before a judge in Delaware. Moonves is also pressing CBS into new frontiers, working to wring more revenue from new forms of distribution, like streaming video, as well as broader partnerships for the content CBS produces. CBS has in recent months launched a new streaming-video sports-news outlet and is expected to debut another featuring entertainment news under the Entertainment Tonight brand.

These new business areas are critical for the company, which is much smaller than new-tech competitors like Apple and Amazon, or growing content-distribution hybrids like AT&T and Time Warner or Comcast Corp. and NBCUniversal. And while other media companies pursue mergers like the one that paired Discovery with Scripps Networks or Lionsgate with Starz, CBS has for now chosen to go it alone, launching new digital operations while maintaining its flagship broadcast network and its Showtime pay-cable outlet.

CBS has to take a pause to suss out whether the allegations against Moonves have substance, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. CBS’ response Friday is “pretty standard,” Elson says, while acknowledging that it could split the company’s attention at a key moment in is history and give National Amusements some leverage in its current fight. “Anything that dampens [Moonves’] ability to respond is going to make [NAI executives’] lives a little easier,” he adds.

Some Wall Street observers wonder if the article’s publication has anything to do with National Amusements’ efforts to gain the upper hand. Redstone “needs management to stop fighting her so she is trying to get him ousted,” says Laura Needham, a media industry analyst at Needham & Co. In a statement released Friday, a spokesperson for Redstone said: “The malicious insinuation that Ms. Redstone is somehow behind the allegations of inappropriate personal behavior by Mr. Moonves or today’s reports is false and self-serving. Ms. Redstone hopes that the investigation of these allegations is thorough, open and transparent.” The New Yorker report states that interviews with the women involved began before CBS and National Amusements became embroiled in lawsuits.

Moonves’ departure would likely trigger the departure of several senior CBS executives, according to people familiar with the matter, who would either follow the CEO out the door or who might be sent packing once a new boss takes over. “We need to get the facts,” says Martin, “but it’s a tragedy for CBS shareholders, because these are the very people who have delivered so much value to shareholders over decades – and to consumers. This team has created some of the greatest shows in television history.” The prospect of a CBS without Moonves at the helm is likely to make CBS shareholders more ambivalent about the company’s prospects. “Mr. Moonves has a terrific track record; any increased risk of him being fired is a negative for investors,” says Doug Mitchelson, a media analyst with Credit Suisse First Boston, in a Friday research note.

And his leaving could have some bearing on the executive’s finances. If Moonves leaves the company without cause or with good reason, he could stand to walk out with as much as $33 million to $35 million in salary; $82 million in bonuses; and more than $64.6 million in vested long-term incentive award, according to CBS’ most recent proxy statement, filed in April of this year with the U.S. Securities and Exchange Commission. If he is terminated for cause or leaves the company without good reason, he gets nothing, according to the filing.

Wall Street is unclear about who might take over management of CBS if the board’s investigation requires Moonves to leave. Richard Parsons, a former CEO of Time Warner, is supposed to stand for election to the CBS board at the company’s next annual meeting, but analysts suspect he would not want to serve in a day-to-day role over a longer term. One analyst suggested Jeff Bewkes, who recently led Time Warner into a merger with AT&T, would have the temperament and experience to lead CBS, but whether he would want to step back into such a role remains unknown. Most believe Bob Bakish, the current CEO of Viacom and a Redstone favorite, would be the likely successor if Moonves were to step down as a result of the accusations. Joseph Ianniello, the company’s chief operating officer, has recently been viewed as a potential successor to the CEO.

Investors will likely press the CBS board to get its investigation wrapped quickly, suggested Tim Hubbard, an assistant professor of management at the University of Notre Dame. These allegations, he says, “complicate everything.”

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