The CBS-Viacom merger is off, which means CBS could still merge with someone else


CBS head Les Moonves likely couldn’t get the deal terms he wanted.

The owner of CBS and Viacom has called off a merger that would have combined the broadcast network with Nickelodeon, MTV and Paramount film studios.

Shari Redstone, who (along with her father Sumner) controls both CBS and Viacom through National Amusements, called off the deal less than three months after formally asking both boards to look at a combination.

The thinking here, according to the Redstones: The new CEO of Viacom, Bob Bakish, has done a great job outlining a vision for the ailing company, so there’s no need to tie up with CBS, the more valuable of the two.

The more likely reason is that CBS CEO Les Moonves, who was tapped to run the merged company, couldn’t get the terms he was seeking from Shari Redstone.

Moonves has long resisted a merger because it would mean having to fix Viacom, and he doesn’t want to finish out his career saddled with a faltering business, as we reported in September.

He would have needed effective control, and that could have been sorted in any number of ways, including Shari voting her shares however Moonves wanted. That likely didn’t happen, or any other control structure that would have satisfied both parties.

CBS plus EPSN?

This means CBS now has an opportunity to seek a merger elsewhere. Executives at the network had discussed the possibility of selling to a tech giant, according to several sources, as well as reconsidering a years-long dance with Time Warner. That was before AT&T agreed to buy the media giant for $85 billion, a deal that doesn’t make any sense.

There is the possibility that CBS could tie up with ESPN, if owner Disney sees its way to spinning off the network. ESPN’s viewership is down, and media kingpin John Malone recently floated the idea of Disney selling or spinning off ESPN and ABC as a way for Disney to maintain its core value, which rests on its movie studios (Disney, Marvel and Lucasfilm) and its theme parks.

But then why are mergers even a factor for the media conglomerates?

Traditional media companies will face two big challenges in the next few years.

  1. As their contracts with distributors come up for renegotiation, the cable and telephone companies will play hardball to keep rates down, especially as more people cut the cord.
  2. As the sports rights for all the major pro leagues come up for grabs in 2021, Google, Amazon and Facebook will likely bid for some of those rights, potentially driving up prices more than usual.

Simply put: CBS and Time Warner and Fox and even ESPN will have a much harder time winning those deals and thus growing their viewership. A.k.a., hello the internet.

That’s partly why Time Warner agreed to sell to AT&T, a company with much deeper pockets. The acquisition also means the situation is no longer Time Warner CEO Jeff Bewkes’s problem.

The stated reason, according to both, is that by being part of AT&T (a distributor), Time Warner can speed up new and innovative ways to deliver its shows to viewers, whether on mobile or desktop or whatever else becomes the Next Big Thing.

For context, Time Warner recently did own a distributor, Time Warner Cable, which it spun off in 2009, so I still don’t get the logic.

Viacom, which has never had sports rights, has been harder hit by ratings declines, which was partly the Redstones’ motivation to combine it with CBS, which has a stronger viewership thanks to Moonves’s near-mythic programming prowess.

Here’s the letter the Redstones sent to the boards of CBS and Viacom:

Members of the Boards:

This past September, we asked the boards of CBS and Viacom to consider a potential combination. We believed that given the industry landscape, a merger might redound to the benefit of both companies and their shareholders. On a parallel track, we urged both companies to move forward with steps to strengthen their operations on a stand-alone basis.

Over the past few months, after careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge the companies. Following the management changes that the Viacom Board put in place, we have been very impressed with the forward-looking thinking and strategic plan being pursued under Bob Bakish’s leadership. We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed. At the same time, CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis.

Based on our assessment of the strengths, progress, and future prospects of both companies, we are requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward.

We are incredibly proud of the talented and hard-working individuals who comprise both companies, and who are truly second to none in the industry. We would like to thank the boards and special committees of both Viacom and CBS for their consideration of our request.

Sincerely,

NATIONAL AMUSEMENTS, INC.

/s/ Sumner M. Redstone

Chief Executive Officer

/s/ Shari Redstone

President

via http://ift.tt/2hlWf5J

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