Viacom dream should eventually succumb to CBS magic Touch

While there are no detailed documents on their websites, it is now obvious that there is a very public fight for CBS to takeover Viacom, including leaks this week to Variety and Reuters, which are pretty much in full agreement that a low ball bid has already been made and already been rejected, signaling that talks are now on in earnest.

The low bid shows the ruthless streak in Leslie Moonves, who has clearly realized that the lower the value of Viacom in such a deal, the higher value his existing CBS Class B non-voting stock and options amount to in the combined entity. If he has to take over Viacom, he wants to make sure he gets fully compensated for being asked to do yet another turnaround. But because the valuation is only a fraction above that falling Viacom market capitalization, it was quite naturally rejected.

Moonves has openly said he has no desire to see the two companies merged, while Shari Redstone, running National Amusements, the holding company with around 79.5% of the voting class of CBS and Viacom stock, has other ideas and wishes for some of the CBS magic to rub off on the Viacom share price. In essence she doesn’t care how much CBS pays for Viacom as long as other shareholders go along to the extent that the deal completes, and as long as Moonves applies the magic touch. He is one of the best paid executives in media and this magic touch has turned around a broadcaster that was never expected to “make it” outside of Viacom, into a spectacular success.

The only official mention of this transaction is a line in the last set of accounts which reads simply, “On February 1, 2018, the Company announced that its Board of Directors established a special committee of independent directors to evaluate a potential combination with Viacom Inc. There can be no assurance that this process will result in a transaction or on what terms any transaction may occur.”

CBS has formally submitted a bid, thought to be an all-stock offer to Viacom’s corresponding special committee, valuing it at around $12.5 billion. The effect was for the stock price to fall under that value, to around $11.9 billion, and rumors have it that Redstone is seeking a place in the merged entity for Viacom CEO Bob Bakish, who has done a tolerably good job as a CEO despite always looking to us like a second choice behind this merger. It would be unlike a Redstone to worry overmuch over the fate of any individual executive, so that is unlikely to block any deal.

The truth is that CBS is riding high on the OTT skinny bundle direction that US broadcasters have taken recently, due to its highly popular broadcast content, while Viacom supports pay TV for the most part with Cable networks, along with its Paramount studio. No part of Viacom has done well in the OTT marketplace as yet, and it needs to take bold decisions and get creative. Bakish is basically a sales guy, albeit a good one, who built markets in Latin America and Asia for the company, and the right role for him is likely maximizing content sales to overseas markets. That would slow down Viacom’s descent in its traditional revenues, while Moonves and team come up with a core change of direction and some OTT derivatives.

The CBS bid has naturally proposed Moonves as chairman-CEO and his key lieutenant, the COO Joe Ianniello, as 2nd in command.

The Viacom special committee response will almost certainly suggest a higher price for Viacom, one that its executives believe they can defend, and it will now bounce around between the two teams. Once Redstone feels she has a deal the markets will accept, the deal will get done, and we think now quite quickly. It was some 12 years ago when the business also separated from Blockbuster video and CBS was given away to the shareholders in order to prevent either of them being a drag on Viacom.

The CBS share price rose this week by about as much as Viacom fell as the news reached the market – but CBS has been in a better position in its 52 week high, as all broadcast stocks have been falling with overall market sentiment.

We honestly do not see Viacom surviving without a creative leader taking it by the scruff of the neck and if it is not one already working at CBS, under Moonves, then they must be found elsewhere. Viacom channels have been through a period of conservatism that no TV channels can survive, and fresh young blood needs its head there.

And you have to wonder, what kind of world we are heading into, and how the merged entity will survive within it. Where are the “Originals” that will drive millennial participation in its content. If you key “Paramount Originals” into Google, it offers you “The Odd Couple,” “Sunset Boulevard,” the “Great Gatsby” and “Barbarella,” only one of which is under a decade old.

How anyone transitions that, plus MTV, Comedy Central and Nickelodeon into millennial hits, is anybody’s guess. MTV has been completely taken out by Spotify, Apple Music, Pandora, Amazon and Google Play Music, and there is no turning back the clock. And it has to line up against Time Warner post AT&T merger, NBC, post Comcast merger, and Disney post the Fox merger. Every rival will be bigger that it is, and all have distribution channels galore, so after it manages a merger, it will need to be acquired by a major operator like Verizon. And right now it is too much of a white elephant to attract the right type of attention.