CBS Offer For Viacom Will Be All-Stock, Below Current Market Valuation

CBS plans to make an all-stock offer for Viacom, pegging its value at below its current market valuation, sources familiar with the matter have confirmed.

The initial offer to Viacom, which is expected to come within a matter of days, proposes installing CBS Chief Executive Leslie Moonves at the helm of the merged company for at least two years, Reuters reported. It’s unclear where that would leave Viacom CEO Bob Bakish, who’s been attempting to effect a turnaround and has won points in some quarters for being a welcome change from predecessor Philippe Dauman.

The companies hope to reach an agreement before May, when they report quarterly results. Talks could be difficult if they start with a below-market offer for Viacom, though clearly CBS has had a far better run than its onetime corporate mate. Viacom bought CBS in 2000 but the companies then split in 2006. They abandoned similar merger talks in 2016.

Shares in both companies have been treading water of late. In today’s trading session, Viacom dropped nearly 2% to end at $30.55 and CBS lost 23 cents to finish the day at $51.04. In after-hours trading, Viacom shares have plunged more than 4% on the news of the offer.

Shari Redstone, who serves as the vice chairman of both companies, has been advocating for the merger. She and her 94-year-old father, Sumner Redstone, have a nearly 80% controlling interest in CBS and Viacom through their holding company National Amusements.

After reports that Shari Redstone had been meeting privately with Moonves and lobbying to bring the two companies back together, CBS and Viacom publicly announced the formation of special committees in February to explore a potential merger.

Moonves, who opposed the merger in 2016, will ask for the latitude to make decisions about assembling the executive team, Bloomberg reported last week.

Wall Street investors have quickly seized on the potential advantages of such a combination, which would bring together CBS’ top-rated broadcast network, with its primetime lineup and sports programming; the premium cable channel Showtime and Viacom’s two dozen cable channels; and Paramount Pictures studio. Many of those who take the optimistic view of Viacom have recommended a premium of between 10%-30% over its current value, making the below-market opening offer a little more sobering of a starting point.

A bulked-up CBS-Viacom would have the financial wherewithal to bid for increasingly expensive sports rights, and gain leverage in negotiations with TV distributors, both traditional pay TV providers as well as with online streaming services that are gaining popularity with viewers.

One cloud on the horizon is the legal battle over AT&T’s plans to acquire Time Warner, which is playing out in federal court in Washington, D.C. That deal is a vertical one, but CBS-Viacom would be more horizontal, similar in some respects to the pending Disney-21st Century Fox combination.