CBS Stock Drops After Court Setback

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CBS CEO Leslie Moonves

More legal wrangling is expected, as the Redstones seem fixated on merging Viacom with CBS while Les Moonves, CEO of the latter, is determined to stop such a scenario.

Reacting to a setback in its quest to avoid merging with Viacom, shares of CBS dropped 4 percent Thursday, just ahead of a vote that was expected to dilute the control that Sumner and Shari Redstone have over the Les Moonves-run company.

The Redstones control National Amusements, which holds 80 percent of the voting shares of both CBS and Viacom, and CBS was expected to authorize a plan that would knock that down to 17 percent, which would more closely align with the Redstone's financial position at CBS.

As of now, a judge has said National Amusements is free to attempt to block the CBS effort, but more legal wrangling is expected, as the Redstones seem fixated on merging Viacom with CBS while Moonves, CEO of the latter, is determined to stop such a scenario.

Beyond vague assertions that a merger would not be in the best interest of shareholders, CBS isn't saying specifically why it doesn't want to become one with Viacom again (they were a single company until they split in 2005), though insiders say Moonves isn't happy about what the management structure might look like should they merge.

If Moonves loses his battle and is ousted, he'd walk away with at least $182 million, according to SEC filings.

The chances of CBS acquiring Viacom are "near zero," Bernstein analyst Todd Juenger said Thursday, citing a statement that National Amusements issued this week that says it has "no intention of forcing a merger."

Juenger's thesis, shared by some others on Wall Street, is that CBS has succeeded in driving an intense level of scrutiny surrounding the merger negotiations, so the Redstones wouldn't dare act in a way that might depress shares of CBS.

"It was the prospect of the Viacom acquisition that caused the de-rating of CBS stock. Not National Amusement's control," Juenger said. "With a Viacom bid off the table, we continue to believe CBS shares should revert back to closer to what they are worth on their own merit, which in our view is $65."

At the end of trading on Thursday, shares of CBS were at $51.61, down from $60 in January. Meanwhile, shares of Viacom, run by CEO Robert Bakish, closed at $28.16, down from $34 in January, suggesting that Wall Street presumes that, if a merger should happen, CBS would not have to pay much of a premium for Viacom.