Make no mistake: Summer may be nearly here, but winter is coming to CBS. The ongoing problem at the broadcast television company, hanging like a sword of Damocles over its head, remains the expected recombination with Viacom. “Ain’t no stopping it now,” a former CBS executive tells me. The former executive added that CBS’s decision to extend acting C.E.O. Joe Ianniello’s contract through the end of 2019 “virtually guarantees” that the merger with Viacom will be announced before the end of the year, because it ratifies what was already painfully obvious: that CBS could not find an A-list, permanent C.E.O. while the merger with Viacom is unresolved.
According to another longtime CBS observer, the boards of the two companies are “getting re-acquainted” after merger talks broke off unexpectedly a year or so ago, when then-CBS chief Les Moonves decided he did not want Bob Bakish, the C.E.O. of Viacom, to replace him as C.E.O. of the combined company. (He preferred Ianniello.) But Shari Redstone, the daughter of media mogul Sumner Redstone, the principal owner of Viacom and CBS, wanted Bakish to succeed Moonves. Now, with Moonves long gone, the two boards—fully under the control of Shari Redstone—are having a grand time renewing their conversations as a prelude to the expected full-blown merger. There is “constructive engagement” going on, the CBS observer says.
But that’s where the good news stops. A merger between CBS and Viacom will inevitably lead to job losses. When the two sides abandoned their last attempt at a merger a little more than a year ago, more than $1 billion in “cost synergies” had been identified by the bankers and executives involved in the discussions. On Wall Street, “cost synergies,” in the context of merger negotiations, is code for “expense cuts.” And that’s what the rank and file at CBS (and Viacom for that matter, too) probably have not reckoned with as Shari Redstone continues to push the two companies together. “People inside CBS aren’t focused on this happening, even though they should be,” says the former CBS executive. “A billion dollars of synergies sounds nice when it rolls off a banker’s tongue, but guess what? That means big job losses are coming in the aftermath of the merger.”
You will recall that the Redstone family controls both CBS and Viacom through its roughly 80 percent voting stake in both entities. Although once upon a time Viacom bought CBS, the two have been separately traded companies since 2006. For the past three years, Shari Redstone has been pushing for a merger between Viacom and CBS, presumably to make it easier for the Redstones to begin to diversify, and to liquidate, the family’s $5 billion or so stakes in the two companies.
As part of the agreement under which Moonves left CBS last September, after a spate of #MeToo accusations, Shari Redstone agreed that her family’s holding company, National Amusements Inc., would not initiate a third round of merger discussions until after September 2020. But the cleverly drafted document did not exclude the possibility that the boards of the two companies—on their own (wink, wink, nod, nod)—would initiate merger discussions well before that time. And, of course, that is exactly what is happening. Wall Street banks and lawyers have been hired. No one is talking for the record, but it sure looks like the third time will be the charm, especially since Moonves (or anyone else for that matter) is no longer in a position to stop a deal. The negotiations between the two boards of directors have reportedly been underway for some time. (Spokespeople for CBS and Viacom declined to comment.)
The quickly re-aligning media landscape virtually requires that CBS and Viacom bulk up to compete with the behemoths at Disney, Comcast, Apple, and Amazon. Why not begin the process of getting bigger by bringing the two sides of the family back under one roof?
But that’s where the trouble starts for CBS and its nearly 13,000 employees, especially if one uses last year’s financial details as a proxy for the terms of the coming merger agreement. Last time around, you may recall, Nicole Seligman, the head of the special committee of Viacom directors appointed to consider the CBS merger, and Bruce Gordon, Seligman’s counterpart at CBS, agreed on an exchange ratio of 0.6135 per CBS share for each Viacom share. That valued Viacom at around $12 billion. (Gordon left the board late last year, which explains part of the new round of dating going on at the board level.) These days, Viacom is already trading at a valuation of around $12 billion, so it’s more than likely CBS will have to increase its opening bid for Viacom from last time in order to satisfy the non-Redstone shareholders of Viacom that a deal with CBS is fair. (If what happened last time holds again, all four of the banking firms representing the two special committees will have to issue what are called “fairness opinions,” essentially a combined blessing that the deal is “fair” to various groups of shareholders from a financial point of view.)
CBS is trying to maintain business as usual. Last week, there were all sorts of chess pieces moved around inside the CBS news division, with Susan Zirinsky shipping the Evening News off to D.C. Meanwhile, on Wednesday afternoon, CBS will make its annual “upfront” presentation at Carnegie Hall, on West 57th Street—its pitch for a meaningful piece of the $20 billion or so in ad dollars up for grabs—before big advertisers and the media. It’s an important date on the entertainment calendar every year, as the networks talk about their shows and the relevancy of their medium. Afterward, CBS will host a reception at the Plaza Hotel, down the street on Fifth Avenue. It will be the first time in recent memory that CBS goes to the upfronts without Moonves; it might very well be the last time it does so before the bloodletting begins.
