CBS Corp. and Viacom revealed the timeline of the merger talks in a Securities and Exchange Commission filing on Thursday that runs nearly 300 pages. Also Thursday, CBS and Viacom said the shares of the newly minted ViacomCBS will trade on the Nasdaq market, where Viacom shares have been listed since December 2011. CBS at present is listed on the New York Stock Exchange.
The filing offers details of the wrangling between the boards of CBS and Viacom, and with the controlling shareholder in both companies, the Redstone family’s National Amusements Inc. (NAI). When CBS and Viacom fielded competing proposals for the combined company’s moniker, it was NAI that settled on ViacomCBS. ViacomCBS shares will trade under the ticker symbol VIACA (for the preferred shares largely held by NAI) and VIAC (for the common shares). The combined company will take a cue from CBS in having a fiscal year that ends Dec. 31 rather than on Sept. 30 as has been the norm for Viacom.
The filing sheds light on the sticking points in the negotiations that heated up in earnest in June. Viacom president-CEO Bob Bakish had an audition of sorts with the CBS board of directors before they agreed on Viacom’s push that he be named ViacomCBS CEO. CBS’ acting CEO Joseph Ianniello had multiple meetings with Shari Redstone, who is set to become chair of ViacomCBS, prior to accepting the CBS board’s demand that Ianniello have a “significant” executive role in the combined company.
The disclosure also reveals that Viacom dropped its asking price five times between Aug. 2 and Aug. 12, the day the sides agreed on a stock exchange ratio of 0.5965 shares of CBS for every Viacom share held. CBS’ board was insistent that the deal value Viacom at or near its market cap at the time of the transaction. The deal unveiled Aug. 13 values Viacom at around $12.5 billion-$13 billion.
The long list of board meetings and huddles with a raft of financial advisers — Centerview and Lazard for CBS, LionTree and Morgan Stanley for Viacom — was documented in great detail because of the potential for litigation around the merger. The board members of both companies have every incentive to demonstrate that outside bankers and lawyers were on hand to review every step.
CBS and Viacom had two previous fitful attempts at merger discussions in 2016 and early 2018, but in both cases, corporate drama derailed Redstone’s desire to see the two halves of her family’s media empire reunited. CBS and Viacom were brought together by her father, Sumner Redstone, in 2000, and split up into separate entities again as of January 2006.
The picture changed in September 2018 after longtime CBS chairman-CEO Leslie Moonves was ousted as allegations of sexual misconduct in his past surfaced. That came four months after Moonves went to war with Shari Redstone over control of CBS, filing a lawsuit that argued she was breaching her fiduciary duty to other CBS shareholders by pushing for the CBS-Viacom deal. After Moonves was forced out, Ianniello was named acting CEO.
Moonves’ ouster also coincided with the departures of six other CBS board members. From September to November of 2018, according to the filing, the newly reconstituted CBS board had four meetings with CBS senior managers to review company operations and allow the new board members to become familiar with the broadcast giant.
The filing makes note that those four meetings did not include discussions of “strategic alternatives” — aka M&A options.
On Jan. 22, Ianniello and newly appointed chief financial officer Christina Spade presented a long-range business plan to the board and engaged “in-depth discussion” about the proposal. At that time, the board approved the first year of that plan as CBS’ marching orders for 2019.
Nine days later, the CBS board met with advisers at Lazard and Centerview to hear their view of the changing media landscape and CBS’ long-term prospects.
By February, the CBS board was ready to take bigger steps toward positioning the Eye for the future. On Feb. 21 and March 9, CBS board members met to discuss “specific potential acquisition or merger opportunities within the media industry,” according to the filing. The board decided to “further evaluate” the potential of a re-combination with Viacom.
On March 25, Ianniello had his second meeting with Shari Redstone. Ianniello reiterated his belief that there was merit to a CBS-Viacom integration, if the price and other conditions were right. Those were important conciliatory moves for the CBS chief because he had been a top lieutenant to Moonves since 2006 and he was closely associated with the bold effort to sue NAI and Redstone in 2018.
On April 4, CBS board members meet again with Centerview, Lazard and lawyers from the Paul Weiss firm. Shari Redstone and Robert Klieger, a CBS board member designated by NAI, skip the session because of their conflicting ties to NAI.
The outside advisers tell the CBS board that the timing is bad for CBS to be an acquisition target because the likeliest buyers — none are named but the list presumably included AT&T, Comcast and Disney — were already preoccupied with other acquisition deals. Also, the advisers noted that a CBS deal with an entity other than Viacom would bring regulatory scrutiny, whereas the CBS-Viacom deal is expected to have a much smoother regulatory review because the companies already share a common parent company in NAI.
On April 7, the CBS board creates a four-person special committee of eight independent directors: Candace Beinecke, Barbara Byrne, Linda Griego, Martha Minow, Susan Schuman, Gary Countryman, Brian Goldner and Frederick Terrell.
The filming makes the point that the CBS special committee “was also empowered to determine at any time not to pursue the potential transaction with Viacom and to terminate CBS’ consideration thereof.”
Four days later, Bakish and Ianniello have their first discussion about a possible merger, with the blessing of both boards. On April 17, CBS and Viacom executives sign a non-disclosure agreement regarding the merger discussions. On April 26, Viacom’s short-term financial forecasts are shared with the CBS board. By May 10, senior executives from both companies met “to discuss potential synergies that could be achieved.”
June was a busy month of meetings and due diligence for the boards and senior executives of both companies. Viacom board members raise concerns among themselves about the economic terms of the deal. CBS gave every signal that it was in favor of the deal but only at a price. The CBS board felt the premium for Viacom shares was already baked in to the company’s stock price.
NAI stayed out of those discussions although the filing notes that Redstone did “from time to time state that the exchange ratio should be fair to shareholders of both companies.”
Around this time, CBS floated an offer to buy the Starz premium cable channel group from Lionsgate for $5 billion. The CBS board members agreed among themselves that Starz (described as “Company A” in the filing) was not an alternative to a Viacom transaction but rather a supplement.
Also at this time, the CBS board began to have specific discussions about the fate of Bakish and Ianniello. Viacom and NAI made it clear they both favored Bakish in the CEO role.
The first stirrings of economic considerations appear in June, with the Viacom board suggesting that the exchange ratio of 0.61, which had been tentatively agreed on during the spring 2018 talks, should be the minimum floor price in discussions. CBS did not agree.
In late June, Bakish and Ianniello have multiple meetings to discuss senior management decisions and CBS’ “rumored” interest in Starz.
On July 8, Bakish gets his closeup with a meeting with four CBS directors: Beinecke, Byrne, Goldner and Terrell. The group discussed Bakish’s “vision and strategic views for the combined company and his viewers with respect to the composition of the senior management team.”
Bakish and Ianniello have more meetings in July. The discussion of the combined company name comes up. The sides also differ on proposals for the board structure of ViacomCBS. Viacom proposes 15 directors while CBS lobbies for 12. The final decision split the difference at 13.
Also in July, the CBS board is explicit in demanding a role for Ianniello at CBS “to provide a sense of continuity and stability for CBS employees.”
On July 30 Viacom proposes an exchange ratio of 0.63. Two days later, Bakish meets with CBS CFO Christina Spade to discuss assembling a blended corporate management team.
By Aug. 2, the question of management and the company name was settled. But the CBS special committee told its Viacom counterpart that the 0.63 exchange ratio was a non-starter and they needed to come back with something “closer to where the CBS special committee would be willing to transact.”
The next day, Viacom drops its asking price to 0.615. On Aug. 5, Viacom shaves the price down to 0.6125 while CBS raises its offer to 0.5625. At this point, the talks are put on hold while both companies report quarterly earnings on Aug. 8.
The back-and-forth resumes on Aug. 11. The CBS special committee tells Viacom that it will only consider an exchange ratio that is under 0.60. After what sounds like a marathon day of board meetings, CBS and Viacom authorize their respective bankers to haggle over the exchange ratio. Viacom returns with an offer of 0.6064, which is quickly trimmed to 0.604, and finally to the magic number of 0.5965. CBS accepts that figure on Aug.12.
On Aug. 12-13, there’s last-minute wrangling over some open points on new contracts for key CBS executives. The back and forth between the boards persists on Aug. 13, the day the merger agreement was announced after the market close.
The shadow of the earlier fights over the merger still hangs over the boardrooms. As part of the merger agreement, NAI expressly committed to making no changes to the ViacomCBS board until the second anniversary of the deal closing. It also agreed to maintain a board that is majority controlled by independent directors that are not affiliated with NAI. And it agreed to have an open mind about a potential acquisition of ViacomCBS, should a suitor come forward. As described in the filing, NAI is obligated to give “good faith consideration to any business combination or other strategic alternative involving ViacomCBS that the Unaffiliated Independent Directors determine may be in the best interests of ViacomCBS and its stockholders.”