CBS Investor Says Viacom Deal Not `Optimal' in Board Letter

(Bloomberg) -- One of CBS Corp.’s biggest shareholders has written to the company’s board saying it should only proceed with a deal for Viacom Inc. if certain terms can be agreed on.

The shareholder, who declined to be identified, wants CBS Chief Executive Officer Leslie Moonves and his management team to lead the combined company. If that doesn’t happen CBS should be compensated with a “clear premium” when the final share ratio of a deal is decided, according to the letter obtained by Bloomberg.

A merger with Viacom isn’t the “optimal strategic path” for CBS, the shareholder wrote in the letter, dated March 21. It urges the broadcaster’s special committee of independent directors not to pay above current market price in any transaction.

“Coming to the rescue of a weakly positioned, poorly executing, over-levered Viacom is not CBS’s burden,” the investor wrote. The shareholder is among the top 10 CBS holders, according to a person familiar with the matter who asked not to be identified as the details aren’t public.

Controlling shareholder Shari Redstone asked the companies to consider a merger earlier this year, 12 years after they were broken apart and two years after an attempt at recombination failed. Redstone has the power to seek new board directors and oust management.

According to the letter, the CBS investor wants any transaction to be contingent on approval by a majority of both Class A and Class B shareholders that aren’t related to the Redstone family, which controls about 80 percent of the voting stock in both companies. The shareholder also called for “complete autonomy” for the board of the merged company and a strategic review and potential sale of Viacom’s Paramount Pictures film studio.

Viacom’s more widely traded Class B shares do not come with voting rights.

Management and valuation have emerged as the key issues in negotiations, after CBS opened with a below-market offer and a demand that Moonves and his chief operating officer Joseph Ianniello run the combined business. Viacom’s committee of independent directors have in turn proposed a price that’s more than 20 percent higher and are insisting that its CEO Bob Bakish, not Ianniello, be installed as president and COO, people with knowledge of the discussions said earlier.

Redstone wants executives from both companies to run a combined entity, people familiar with the matter said last week. Redstone won’t support combining the companies without Bakish in a top management role, said the people.

Wells Fargo & Co. analyst Marci Ryvicker said in a note to clients on Feb. 8 that while investors might default to CBS management leading the combined business, “we honestly don’t know what Les can do to run VIAB’s assets any better than the plan Bakish has already put into place.”

Representatives for CBS and Viacom declined to comment.

Viacom shares closed up less than 1 percent at $30.97 in New York, while CBS was little changed at $52.85.

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