Viacom digs heels to inflate CBS merger price – your move, Moonves

The fairytale reunion between CBS and Viacom for a second shot at creating a global media monolith has apparently stalled once more, regarding Viacom’s valuation. Frankly this is hot air – all that parent company National Amusements and its influential Redstone overlords must do is give CBS CEO Lesley Moonves whatever he wants and worry about shareholders later.

Moonves is making National Amusements some serious money as CBS climbs the broadcast rankings and its’ All Access and Showtime OTT offerings increase in popularity. Meanwhile, Viacom’s stock price has continued to slide, with investors growing impatient with the turnaround CEO Bob Bakish was brought in to ignite.

The Viacom camp will argue the company is projected to return to profitability in 2019 and also believes its presence outside the US is undervalued, despite the clear deceleration in advertising revenues in Viacom’s domestic and international businesses.

If Moonves views Viacom as uncomplimentary to the CBS trajectory then Shari Redstone, a major shareholder in National Amusements and the orchestrator behind the proposed merger, should call it quits.

Realistically that won’t happen. Both companies are worth less now, with a combined market cap of $32.4 billion, compared to $35.7 billion back in January when the merger talks came to light. It’s now or never for Shari Redstone. A shake up should bump up the combined valuation to a premium of perhaps $50 billion, but she risks weighing down the value of CBS by latching it with Viacom’s shackles.

With Verizon looking for a solution to its content woes, as well as the uncertainty whether or not AT&T will be allowed to acquire Time Warner, there is scope for a surprise swoop which must be playing on the minds of investors, and indeed Moonves, who is understood to have no ownership interest in Viacom.

Cutting Moonves out of the equation is virtually unfeasible and reports regarding the merger address this, as Variety cites sources claiming Moonves will head up the merged company should an agreement be made, with CBS as the acquiring entity.

“On the basis of asset mix, we think that CBS is better off on its own than it is in acquiring Viacom. Viacom’s businesses, in our view, would detract from CBS’ revenue growth over the next several years and would force CBS to play more defense and less offense than it is playing now,” wrote Deutsche Bank’s Bryan Kraft in a recent report.

Detracting from revenue growth looks likely to be an initial downside of the proposed merger, yet the Viacom International Media Networks subsidiary, based in London, will offer an attractive European expansion opportunity for CBS.

CBS board members are expected to argue Viacom should be valued on its core cable networks business and the Paramount Pictures studio arm, the latter having lost $725 million over the past two years. A meeting between the two boards is scheduled for as early as next week.

“There can be no assurance that this process will result in a transaction or on what terms any transaction may occur. Neither Viacom nor the Committee intends to comment further until the process is completed,” CBS said in a statement.

“National Amusements supports the processes announced by CBS and Viacom to evaluate a combination of the two companies, which we believe has the potential to drive significant, long-term shareholder value. National Amusements does not currently intend to make any further comments regarding the process,” said a statement from National Amusements.