CBS and Viacom Work Through Night to Hammer Out Deal

(Bloomberg) -- CBS Corp. and Viacom Inc. are keeping investors waiting.

The media giants were expected to announce a merger as soon as Monday, the culmination of years of on-again, off-again discussions. But the negotiations have dragged on, setting the stage for another day of anticipation.

The two sides have been working out the terms for an all-stock merger of companies worth a combined $30 billion. They’ve discussed 0.595 to 0.6 of a share of CBS for each of Viacom’s, though that range could change, according to people familiar with the situation. At this level, a deal would value Viacom at around its current level -- in other words, Viacom investors wouldn’t get the kind of premium they might have liked.

Those terms, first reported by the Wall Street Journal, sent shares of Viacom down 4.9% to $28.53 on Monday. That was the steepest intraday decline in almost five months. CBS, meanwhile, dipped 1.8% to $48.04.

The companies held a marathon negotiating session late into the night Sunday, according to the people, without reaching a resolution. The current trading ratio between the two companies is around 0.59, based on their stock prices on Monday in New York.

The last time the companies were in merger discussions, more than a year ago, Viacom directors had agreed to take 0.6135 of a CBS share for every nonvoting share of their business, people with knowledge said at the time.

The companies now expect about $500 million of annual cost savings from the deal after Viacom took about $300 million in costs out of its business, one of the people said. The two sides, using the code names “Comet” and “Venus,” had earlier expected to save at least $1 billion by combining.

Shari Redstone, whose family investment vehicle National Amusements Inc. controls both companies, would become chairman of the combined entity, the people said. Viacom Chief Executive Officer Bob Bakish, meanwhile, is set to lead the company as CEO, according to the people. He would also get a seat on the board.

The deal would unite the most-watched U.S. broadcast network with the owner of the Paramount movie studio and cable channels such as MTV and Nickelodeon. It would also cap years of failed merger attempts and board infighting at both companies.

Greater Scale

The companies are likely to highlight how greater scale will help them negotiate with third parties, MoffettNathanson analysts said in a note to clients on Friday.

“CBS’s and Paramount’s production asset will quickly move up the ranks to challenge the big boys of Disney, Comcast, AT&T and Netflix, and will be an attractive home for creative talent,” they said.

CBS would receive six seats on the 13-member board, while Viacom would get four, the people said. Another two would be designated to NAI, they said, with Redstone and family attorney Robert Klieger slated for those roles.

Strauss Zelnick, the video-game executive who is the interim CBS chairman, has stated that he’s not interested in an ongoing role. The Information reported on the likely board composition last week.

Viacom had a market value of about $11.7 billion as of Monday’s close.

2006 Split

CBS and Viacom, both based in New York, were one entity until 2006, when the Redstone family decided investors would give them greater value as separate companies. That strategy didn’t work as well as expected, and there’s been sporadic efforts to recombine them in recent years.

CBS has been weighing its next moves since the ouster of longtime CEO Les Moonves last year. He was fired in September after a dozen women accused him of sexual misconduct, setting off a shake-up that included a board overhaul. Joe Ianniello, formerly chief operating officer, has been running the company as interim CEO ever since.

--With assistance from Jeff Green and Gerry Smith.

To contact the reporters on this story: Nabila Ahmed in New York at nahmed54@bloomberg.net;Ed Hammond in New York at ehammond12@bloomberg.net;Lucas Shaw in Los Angeles at lshaw31@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Nick Turner

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