On May 29, the company run by CEO Leslie Moonves claimed in legal documents that Redstone wanted to merge Viacom with CBS, then sell the combined company for a premium the former couldn’t hope to command alone.
Moonves is suing to dilute the Redstone-controlled National Amusements’ 80 percent stake down to 17 percent. If Redstone, 64, were to merge CBS and Viacom, NAI could offer to relinquish the voting control it holds over the merged entity in order to entice potential suitors. Still, no potential buyers likely will show much interest in purchasing CBS or Viacom — Redstone is vice chairman of both — until the lawsuits are settled, and that might not happen until 2019.
CBS, Viacom and NAI declined to comment, but according to insiders and analysts, here are five ways this scenario might resolve itself.
1. CBS Goes Cherry-Picking
Moonves, 68, is said to hate the idea of acquiring all of Viacom’s cable channels, even rebounding MTV and Comedy Central; but Viacom might be willing to sell itself off piecemeal, prompting CBS to bid on Paramount Pictures for access to movies and to help populate its CBS All Access OTT service. Moonves also might want Nickelodeon, especially after joking during an earnings call May 3 that only about 10 to 15 children watch CBS. “It is an area we are not particularly strong in. We see some of the success that Netflix has had with younger programming; obviously it’s something that we are looking at,” he said.
2. CBS Merges, Then Shops
After a merger, Moonves could then pay cash to acquire Lionsgate, which sports about a $5 billion market cap, says Bryan Kraft of Deutsche Bank. In this scenario, he’d get the studio behind a few Netflix favorites, like Orange Is the New Black, along with film franchises like John Wick. “The merger of CBS and Viacom, even if it is consummated, doesn’t really solve the problem of scale,” echoes Barclays Capital analyst Kannan Venkateshwar. Indeed not, since a merged CBS-Viacom would sport a market cap of around $31 billion, dwarfed by Netflix, Disney and Comcast, each of which is north of $140 billion. Beyond Lionsgate, others on the Moonves shopping list might be MGM and Sony Pictures.
3. Both Companies Are Sold
If Redstone gets her way and CBS merges with Viacom, her next move could be to sell the combined entity to the highest bidder, and Verizon or a John Malone company — Discovery Communications or Liberty Media — should be interested, says Sanford C. Bernstein analyst Todd Juenger. Per FCC rules, a buyer could not be a company that already owns a broadcast network, nor could it be foreign-owned, but Silicon Valley would likely come calling, given its insatiable desire for content and the vast amount of capital in cash and stock to spend. Netflix, for example, indulged $6.5 billion on content last year and will spend $8 billion this year — the combined $14.5 billion could have purchased all of Viacom.
4. Double Down on Deals
Should a CBS-Viacom merger not happen, some suggest a separate sale of each. Says analyst Laura Martin of Needham and Co., “CBS could be sold to a large internet platform or a telco like Verizon for $70 per share, a 30 percent premium.” Verizon, in fact, has already kicked the tires on CBS, according to insiders, but executives have said since then that they’re no longer in the market for a traditional entertainment company. That could change if it acquires a distribution platform such as Charter Communications, a $74 billion company.
5. Malone Flips the Equation
Analyst Venkateshwar also sees a scenario where Viacom and CBS end up as parts of the same mega-company, though in a two-step process that involves Malone stepping in to grow Viacom, which then could acquire CBS. In one scenario, the analyst suggests merging Viacom with both Lionsgate and Discovery, then that entity would sport an enterprise value of $53 billion, enough to gobble up CBS and its $28 billion enterprise value. He argues, “Given the complicated holding structure for Malone assets and the pending CBS lawsuit, any sale of National Amusements assets may have to be done in stages.”
This story first appeared in the June 6 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.