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CBS : Viacom Strike Deal for Long-Thwarted Merger -- 3rd Update

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08/13/2019 | 03:56pm EDT

By Benjamin Mullin and Cara Lombardo

CBS Corp. and Viacom Inc. agreed to merge, a deal the media companies hope will put them on stronger footing to compete with larger rivals in a business buffeted by cable TV cord-cutting and increasingly dominated by streaming.

The all-stock deal, if completed, will reunite the media empire of mogul Sumner Redstone, who had split up CBS and Viacom in 2006. It will create a major entertainment player valued at roughly $30 billion, combining Viacom properties such as MTV, Nickelodeon, Comedy Central and the Paramount film and TV studio with CBS's broadcast network and Showtime premium network.

The companies are betting now that merging back together will help them battle titans like Walt Disney Co., Comcast Corp., AT&T Inc. and Netflix Inc. and remain relevant as consumers sign up for streaming video services and pay TV distributors look to cut the fees they pay to programmers.

Shari Redstone, Mr. Redstone's daughter and vice chair of both companies, will become chair of the combined company. The deal would cement Ms. Redstone's status as a powerful media mogul.

She controls both CBS and Viacom along with her father, through their family holding company National Amusements Inc.

Bob Bakish, currently the chief executive of Viacom, would become CEO of the combined entity, while CBS Acting Chief Executive Joe Ianniello would get the title of chairman and CEO of CBS, running its assets.

The deal values Viacom at around $11.8 billion, roughly on par with its current market valuation. Viacom shareholders will receive 0.59625 CBS share for each share they own. Viacom has been the weaker of the two media companies over the past several years, and its stock had risen this year, in part on speculation of a CBS deal.

Under the terms of the agreement, CBS will receive six seats on the 13-member board and Viacom will get four. National Amusements will get two board seats. Mr. Bakish will also get a board seat.

ViacomCBS would have a diverse stable of programming. Viacom brings to the table about 20 cable networks, including a handful of large ones, while CBS has its flagship broadcast network and premium channel Showtime.

That collection of networks could give the merged company greater leverage in negotiations with pay-TV providers, many of which have taken a harder line with TV programmers as cord-cutters flee the traditional cable bundle. CBS has the rights to air National Football League games through 2022, giving the combined entity a valuable bargaining chip since live sports continue to be one of the major draws of cable TV.

Viacom's biggest rivals have struck major deals over the past several years. NBCUniversal sold to cable giant Comcast and, more recently, Time Warner Inc. sold to AT&T, while Disney acquired the bulk of 21st Century Fox.

ViacomCBS would still be a relative minnow, with a much smaller market capitalization than big industry players. It would need to do additional deals to bulk up to the size of its rivals.

The bigger media companies have some major advantages. Disney, for example, has a fabled trove of intellectual property and a variety of assets -- from theme parks to cable networks to movie franchises. Netflix has a seemingly insurmountable lead in streaming-video subscriptions, with 150 million paying users globally.

Disney, Comcast and AT&T are all trying to take on Netflix with plans to launch their own subscription streaming-video services. CBS has its own service, CBS All Access. But CBS and Viacom also both are big suppliers to Netflix and other digital players.

Between their various production outfits and channels, ViacomCBS would have a combined library of 140,000 episodes of premium TV and 3,600 film titles, the companies said. Some 750 series are ordered or in production. ViacomCBS would be among the top spenders on programming, with more than $13 billion spent over the past 12 months.

Beneath Mr. Bakish will be an executive team responsible for overseeing the company's combined cable-networks group, broadcast network, television production studios, its direct-to-consumer streaming services, film studio and advertising sales divisions.

Christina Spade, the chief financial officer of CBS, will become CFO of ViacomCBS. Christa D'Alimonte, the general counsel of Viacom, will be general counsel.

David Nevins, the chief creative officer of CBS, will continue in his current role. Jim Lanzone, the president and chief executive of CBS Interactive, will retain that title.

ViacomCBS would seek $500 million in annual synergies, according to the companies.

The companies may have to navigate some cultural challenges. CBS is the stronger player, but Viacom's leader will be the CEO. Directors at CBS and Viacom explored a merger three times in the past four years.

The first merger attempt, in late 2016, was called off due to a lack of enthusiasm on the part of both companies. The second attempt, in 2018, led to a prolonged legal battle between National Amusements and CBS over the future of the company. CBS, under then-CEO Leslie Moonves, sought to strip Ms. Redstone of her voting control of the company by issuing a dividend that would dilute National Amusements' voting stake.

National Amusements resisted the change and the dispute went to court. Under a settlement reached last September, Ms. Redstone emerged with her control intact, and the board of CBS underwent a significant overhaul; new directors who were friendlier to her joined the board. Mr. Moonves was forced out after multiple women accused him of sexual assault and harassment. Mr. Moonves has denied accusations of nonconsensual sexual relations.

Ms. Redstone is unique among media moguls in the way she exercises influence over CBS and Viacom. Her power is concentrated in a holding company that is technically controlled by her ailing father. The 96-year-old Mr. Redstone owns 80% of the voting shares of National Amusements, which itself holds controlling stakes in CBS and Viacom.

In a statement, Ms. Redstone said, "I am really excited to see these two great companies come together so that they can realize the incredible power of their combined assets. My father once said 'content is king,' and never has that been more true than today."

Ms. Redstone has had a complicated relationship with her father over the years -- at times, she seemed to be the favored heir, while at other times they feuded. But a few years ago, as his health deteriorated, she rose to prominence in the empire and took effective control.

The holding company's bylaws were amended in 2016 to make clear that Mr. Redstone had a single vote among seven NAI directors in decisions tied to Viacom and CBS stakes.

The deal reverses the move, made in 2006, to split up CBS and Viacom. That cleaved Viacom's then-booming cable-networks division from CBS's more mature TV business. Mr. Redstone, concerned that the stock of the combined company had stagnated, blessed a move that created two public companies that one analyst dubbed "ViaGrow" (referring to Viacom) and "ViaSlow" (a tongue-in-cheek reference to CBS).

But the narrative flipped over the years as CBS's prospects grew brighter while Viacom's dimmed. CBS, fueled by hit shows and subscription-TV revenues, was more resilient as consumers began cutting the cable TV cord in larger numbers. By contrast, Viacom suffered major ratings declines at its big networks, leading to battles with its distributors.

Viacom's weakness relative to CBS was one of the major sticking points for CBS directors in recent years when the two companies explored a merger. CBS executives were fearful of being saddled with fading cable channels that would hamper their ability to negotiate with pay-TV distributors.

Write to Benjamin Mullin at Benjamin.Mullin@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CBS CORPORATION -1.00% 43.68 Delayed Quote.0.96%
VIACOM -1.03% 25.98 Delayed Quote.2.06%
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Sales 2019 15 644 M
EBIT 2019 3 136 M
Net income 2019 2 831 M
Debt 2019 8 471 M
Yield 2019 1,74%
P/E ratio 2019 5,68x
P/E ratio 2020 6,88x
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Joseph R. Ianniello President & Chief Executive Officer
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