CBS Climbs as Chief Moonves Is Said to Scout Options for Network
(Bloomberg) -- Leslie Moonves defied the odds a year ago by resisting the Redstone family’s plan to combine CBS Corp. with Viacom Inc., but now a rising tide of media consolidation is forcing the 68-year-old executive to reassess his options.
Shari Redstone, vice chairman of CBS, is pushing for Moonves, CEO of the broadcaster, to once again consider a merger with Viacom to combine the two companies her family controls. Moonves is open to exploring a Viacom deal, according to people familiar with the matter, but he has also talked to a range of potential suitors to identify alternatives. CBS shares surged to a four-month high on Bloomberg’s report.
CBS has discussed deals with companies including Verizon Communications Inc. and Lions Gate Entertainment Corp., the people said, asking not to be identified discussing private information. Those informal discussions haven’t advanced because Redstone would need to approve any deal, one of the people said.
Other large media companies including Walt Disney Co. and Time Warner Inc. have struck multibillion-dollar deals in the past 18 months, leaving CBS and Viacom looking minute by comparison. The flagging stock price for Viacom, down 17 percent in the past year, may give CBS more reason to pursue a deal of some kind.
“It’s easier to argue for a combination now than a couple years ago,” said Barton Crockett, an analyst with FBR Capital Markets.
CBS shares rose 3.7 percent to $61.10 at 11:05 a.m. in New York. Viacom climbed 2.6 percent to $32.78. Lions Gate increased 4.8 percent, while Verizon gained 2 percent.
Merger talks between CBS and Viacom, the owner of cable networks including MTV and Comedy Central, fell apart in December 2016 because the two sides disagreed over money and control. Moonves sought certain assurances about autonomy from his controlling shareholder, and Redstone didn’t want to sell Viacom on the cheap. While Redstone, 63, owns enough stock to make the move on her own, she couldn’t do so without losing Moonves.
Moonves has earned the trust of Wall Street by guiding CBS through a rocky period for most media companies. The company’s flagship broadcast network has been the most-watched TV channel in the U.S. for 14 of the past 15 years while the company’s cable networks, led by Showtime, have boosted sales by about $1 billion over the past decade. He has also pushed CBS into the online TV market with streaming services for both networks.
“He’s been a great show picker over time, and that’s really important,” Crockett said. Moonves has surrounded himself at the company with allies, and the same goes for the board. Twelve people have sat on the CBS board since at least March 2007, and most of them will follow the lead of Moonves.
The other two CBS directors joined last year, and Redstone could seek to replace other board members and bring in some new blood if Moonves resists a Viacom merger, the people said. The Wall Street Journal reported Wednesday that Redstone was seeking new CBS directors.
Redstone is expected to propose the two companies explore a merger, either by establishing board committees to review the idea or by opening an informal channel between Moonves and Viacom CEO Bob Bakish.
Besides their shared ownership, CBS and Viacom could fit together because with their combined roster of TV networks, they would be able to push for better financial terms from distributors such as cable companies. On the other hand, a merger would do nothing to reduce the companies’ reliance on the pay-TV business, a stagnant industry besieged by wealthy technology giants and in the midst of rapid consolidation.
Moonves has insisted on CBS’s strength as a stand-alone entity while competitors Discovery Communications Inc. and Scripps Networks Interactive Inc., Disney and 21st Century Fox Inc., and Lions Gate and Starz unite. Viacom would be the weaker partner in a deal with CBS. Sales are projected to decline this fiscal year for the sixth time in seven years, with young viewers abandoning MTV, BET and Comedy Central for YouTube and Netflix. Pay-TV operators have dropped Viacom’s channels or negotiated to reduce the monthly fees they pay to the company. And executive turmoil damaged morale for years.
Bakish has brought stability and a strategic plan to Viacom, but hasn’t halted the drop in the company’s market value, down to $13.1 billion at Wednesday’s close, compared with $23.6 billion for CBS.
“A year ago, Viacom was about 70 percent the price of CBS stock and now it is closer to 50 percent,” said Alan Gould, an analyst with Rosenblatt Securities. “The ratio is much more favorable to CBS than the ratio a year ago.”
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