CBS’ Viacom bid may be lowball
Network is expected to make an all-stock offer this week.
The proposed marriage between CBS Corp. and Viacom Inc. may be off to a rocky start as CBS prepares a lowball bid to buy cable television programmer Viacom.
CBS’ proposed all-stock offer — which could come in the next few days — is expected to place a lower valuation on Viacom than its current market capitalization, according to a person familiar with the matter who was not authorized to discuss it.
In addition, the CBS offer is expected to stipulate that its chairman and chief executive, Leslie Moonves, would run the combined company for at least two years, the knowledgeable person said. Moonves’ contract with CBS goes through mid-2021.
Companies typically offer a generous premium, 30% or more, when trying to buy another firm. CBS’ demands suggest the New York broadcasting giant is determined to drive a hard bargain despite the unusual backdrop for the talks.
Both CBS and Viacom are controlled by the Sumner Redstone family. Shari Redstone, daughter of the ailing 94-year-old mogul, has been keen to unite the two companies at a time of growing uncertainty in the media business. Technology giants Netflix, Google and Amazon.com have invaded the space and are spending heavily to create original TV programming that appeals to viewers who prefer video on demand.
Viacom’s current market value is $12.7 billion. Its shares closed Monday at $30.55 — and then slipped in after-hours trading amid news of the proposed deal terms. CBS’ market value is $19.4 billion; its shares fell 1.3% to $50.71.
Medium-size players such as CBS and Viacom are under pressure to bulk up at a time of rapid consolida-
tion. Walt Disney Co. plans to take over 21st Century Fox, while AT&T is attempting to buy Time Warner Inc.
CBS and Viacom announced in February they had formed special committees composed of independent directors to evaluate whether a consolidation would benefit shareholders.
Although most analysts expect a deal will eventually emerge, there could be several hurdles.
Shari Redstone tried to merge the two entities in the fall of 2016, but her efforts collapsed over a valuation for Viacom. CBS’ Moonves also had been demanding autonomy to run the company as he saw fit, according to several knowledgeable people. CBS’ board also resisted reunification out of concern that Viacom’s problems would weigh on CBS.
After the CBS talks ended, Viacom’s former international chief, Bob Bakish, was tapped to run Viacom, and Shari Redstone appears impressed with Bakish’s collaborative style and his early results.
Details of the proposed bid, which were first reported Monday by Reuters, suggest that CBS has not backed down from its 2016 demands. And Moonves, 68, appears to have leverage: his company is stronger than Viacom, and Wall Street respects his long track record in managing CBS.
A second person familiar with the process concluded that CBS’ planned lowball offer would probably be “a starting point” for the negotiations.
Analysts, in recent weeks, have suggested that Viacom is worth more than $30 a share.
“We conclude that Viacom will likely get some premium because … CBS management cares more about control than price (within reason), and wants to get the deal done and move on,” RBC Capital Markets media analyst Steven Cahall wrote in a report last week.
Viacom was once one of the most formidable television programmers because of its stable of cable TV channels, including Nickelodeon, MTV, VH1, Comedy Central and BET. The company also owns the Melrose Avenue movie studio Paramount Pictures, which has been mired in a prolonged box-office slump.
“Certainly, Viacom’s management has taken steps to stabilize the company, cut costs and show the value of investments, but we don’t think media investors are necessarily convinced that Viacom is worth more on its own than it is in a takeout scenario given its troubles,” Cahall wrote.
Needham & Co. media analyst Laura Martin said, in a separate report, that Viacom already trades at a 15% to 30% discount to other media companies. She concluded that Viacom is probably worth about $40 a share.
“Viacom has strong brands and deep penetration,” Martin said.
CBS and Viacom were one entity until Sumner Redstone in 2006 divided his empire into two companies in a bid to generate more wealth.
In recent years, Viacom has struggled with ratings challenges at key networks and box-office flops at Paramount Pictures. The movie studio — which has racked up hundreds of millions of dollars in losses in recent years — currently has a negative valuation. Paramount’s library alone should be worth more than $6 billion, Martin argued.
CBS has been able to boost its value on the strength of its programming, but its stock has dropped 12% since investors learned of a potential merger this year. CBS has substantially increased revenue through the fees it charges cable and satellite television distributors that want to include CBS in their pay-TV bundle.
But the storied company faces its own challenges, including a reliance on advertising at a time when viewers are turning away from commercials.