Viacom Balks at CBS Bid

It didn’t take long, but sources confirmed reports that Viacom wasn’t particularly happy with the initial merger offer from CBS, and plans to make a counter proposal soon.

Deadline Hollywood first reported that Viacom had rejected the CBS offer, which some observers said is a matter of semantics. The two sides are still planning to negotiate, and CBS is waiting for a counter offer from Viacom which people familiar with the talks say could come “shortly.”

CBS made its proposal to merge with Viacom, at a price that was below the cable programmer’s market cap, in the past few days. As part of that offer, CBS also insisted that leadership of the combined company would consist mostly of current CBS executives, led by chairman and CEO Les Moonves and chief operating officer Joseph Ianniello. Viacom CEO Bob Bakish had no senior role in the initial CBS proposal.

Viacom and CBS officials declined to comment.

But some people familiar with the companies said the biggest beef Viacom has with the CBS proposal is the price. According to those sources, CBS proposed an all-stock deal where Viacom shareholders would receive about half a CBS share for every full share of Viacom they own. That would value the cable programmer at less than its current $12.5 billion market cap, but closer to the company’s value before speculation that it would be combined with CBS began.

This would be the second time the two companies had considered recombining since they split in 2006. In 2016, both had formed special committees to evaluate a recombination, but scrapped those plans in December 2016 in part to allow new Viacom CEO Bakish to execute his plan to revitalize the cable programmer.

Viacom and CBS vice chair Shari Redstone, who controls about 80% of the voting shares of both companies through her relationship with National Amusements, is reportedly a big fan of Bakish, who has made some headway in putting Viacom back on track in the past several months.

But CBS has always been seen as the better run company – its stock price has been about twice that of Viacom’s for more than a year.

While analysts have argued that a recombination would benefit Viacom the most, there is added pressure on CBS to do a deal from both market forces – with Disney's pending $66.1 billion purchase of certain Fox assets looming, consolidation appears to be the trend on the content as well as the distribution sides – and a controlling shareholder that seems to want a deal to happen.

"While this is not the first rodeo for this permutation, we believe a deal is much more likely this time around due to the inability of Viacom to stem viewership losses at flagship networks, the growing ratings and free cash flow challenges at CBS and the need for both companies to buy some time which synergies would likely offer,” wrote Barclays media analyst Kannan Venkateshwar in a note to clients.

The analyst added that while a deal is likely; it doesn’t solve either company’s immediate problems.

“In our view, the core challenges faced by most media companies are distribution and balance sheet scale to enable pivoting towards new business models,” Venkateshwar wrote. “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.”