Sumner Redstone's National Amusements to Call on Viacom and CBS to Explore Merger--4th Update
September 28 2016 - 4:29PM
Dow Jones News
By Keach Hagey and Joe Flint
National Amusements Inc. is set to call for Viacom Inc. and CBS
Corp. to consider a merger, according to people familiar with the
matter, a deal that would reunite the Redstone family's media
empire but would also require winning over a range of skeptics.
National Amusements, which is controlled by Sumner Redstone and
has nearly 80% voting stakes in both companies, is preparing a
letter to send to the boards before the market opens Thursday, some
of the people said.
The move follows the rise to power of Mr. Redstone's daughter,
Shari Redstone, in her father's $40 billion empire after a bruising
power struggle that played out this summer. She is president of
National Amusements and is set to wield great influence over the
family's holdings when Mr. Redstone, who is 93 and ailing,
dies.
Reuters had earlier reported that NAI was planning to call on
CBS and Viacom to explore a merger.
A CBS-Viacom deal would be a reunion. Viacom acquired CBS in
2000 and the companies split in 2006.
Viacom shares rose 2.1% to $36.22 on the news Wednesday, giving
the company a market value of about $14.3 billion. CBS shares rose
1.2% to $52.68, valuing the company at about $23.2 billion.
For Viacom, the deal would come at a moment of great
vulnerability, as the company struggles with underperforming assets
like its Paramount Pictures studio and a cable networks group that
includes MTV and Comedy Central. That has led to a major slide in
the company's stock price.
Viacom announced last week that its interim CEO, Tom Dooley, is
planning to leave in November.
The company also cut its dividend in half and announced plans to
tap debt markets. It has $12 billion in debt and has been under
pressure to improve its operating performance. Moody's Investors
Service downgraded its credit rating to the lowest level of
investment grade.
A merger could potentially provide a strong leader for Viacom in
the form of CBS CEO Leslie Moonves, a favorite of media
investors.
Ms. Redstone broached the topic of a Viacom merger with Mr.
Moonves several months ago, a person familiar with the matter said.
However, there have been no serious talks since then or since
Philippe Dauman agreed in August to step down as Viacom's chairman
and CEO.
Mr. Moonves has previously expressed skepticism about a merger
of the companies, and he said at a recent investor conference that
there were no active talks between CBS and Viacom.
People close to Viacom and CBS think Mr. Moonves won't be sold
on a deal unless CBS is valued at a premium to Viacom and he has
the same level of autonomy he currently enjoys at CBS. His contract
allows him to leave if he no longer reports to the board or is
replaced as chairman.
CBS has been wary of again tying the knot with Viacom at a time
when pay-TV providers are seeking to offer their subscribers
smaller bundles of channels. At the moment, with a popular
broadcast network, CBS feels like it has a strong hand, and worries
its leverage with distributors would be weakened if it also had to
use its assets to cut deals for Viacom's channels, many of which
are in ratings slumps.
At the same time, though, a deal with CBS would give Mr.
Moonves, who is known for his programming acumen, a chance to
revitalize Viacom's assets. Well-regarded by the creative
community, Mr. Moonves might be able to attract strong executive
talent to try to resuscitate Viacom's cable operations.
Also, there would be some synergies between the two companies.
CBS could use the Viacom channels as a second home for some of its
content, something it can't do right now with Showtime or its much
smaller CBS Sports Network.
There could also be advantages internationally for CBS as Viacom
has been building is presence abroad not only through distributing
its programming but also by acquiring or creating its own
channels.
Analysts have been running the numbers on a possible merger of
the two companies in recent months, frequently coming to the
conclusion that under most scenarios a combination will be more
beneficial to Viacom shareholders than CBS holders.
For instance, CBS shareholders are only likely to see upside if
an all-stock transaction includes synergies of more than $500
million and the combined company is valued at 8.5 times 2017 Ebitda
or higher, according to an analysis from Barclays. Minimizing the
premium placed on Viacom and selling assets would boost the upside
for CBS's minority owners, Barclays analyst Kannan Venkateshwar
wrote in a note this week.
CBS shares have fallen more than 9% in the last 2 1/2 months, in
part because of speculation that the two media companies would be
rejoined.
Write to Keach Hagey at keach.hagey@wsj.com and Joe Flint at
joe.flint@wsj.com
(END) Dow Jones Newswires
September 28, 2016 16:14 ET (20:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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