Viacom Makes Counterproposal to CBS Offer

David Livingston/Getty Images; Jenny Anderson/Getty Images
CBS CEO Leslie Moonves; Viacom CEO Bob Bakish

It puts a higher value on Viacom than CBS' initial offer and also calls for a key role for CEO Bob Bakish if a deal is finalized.

Viacom, after rejecting CBS Corp.'s initial merger proposal that had been submitted March 30 to kick off negotiations between the two entertainment companies controlled by the Redstone family, late last week submitted a counter offer.

Viacom didn't immediately comment, but one source said the counterproposal, shared in a letter between independent committees of the companies' board, pushed for a higher price tag. CNBC reported early Monday that Viacom in the letter asked CBS to sweeten its bid by $2.8 billion. 

Sources said CBS had received the counter and would review and respond to it.

Viacom's counter uses a different ratio of the two stocks to put a higher value and a premium, compared with its recent stock price, on Viacom. CBS' initial offer had valued Viacom slightly below its market value. 

While the CBS proposal called for CBS chairman and CEO Leslie Moonves and COO Joe Ianniello to run the combined company, Viacom's counter is also believed to envision its CEO Bob Bakish and Moonves to be the top two executives, something Shari Redstone, the vice chair of both firms, has been pushing for. One source familiar with the offer said it calls for Bakish to serve as president and COO, with Moonves continuing in his current role.  

The negotiations are being handled by independent committees of the two companies' boards that were formed to handle the talks. Viacom and CBS didn't comment on the counteroffer.

Analysts widely said Viacom would see the first CBS as a starting point for tough negotiations, predicting Viacom would push for a higher valuation and a role for Bakish, whose turnaround efforts have improved the company's financial and ratings performance over the past year and who has the support of Shari Redstone, whose family controls both companies and who serves as vice chair of both.

While many on Wall Street have predicted that Moonves would lead a potentially combined company, BTIG‘s Richard Greenfield late Wednesday came out in favor of Viacom's top duo to oversee it. “Attempting to create a mixture of the two existing management teams would likely weigh on the combined company’s prospects,” the commentator said.

Many analysts predict that if a deal is finalized, it would likely put a small premium on Viacom compared with the latter's stock market valuation, but not the 30 percent premium some have recently mentioned as typical in sector deals.

Shari Redstone, the daughter of longtime Viacom and CBS controlling shareholder Sumner Redstone, early this year renewed her push for a recombination of the companies. In late 2016, they had also held talks about a deal but ended them, with Viacom's valuation being a key issue of disagreement.

The renewed talks come as consolidation among Hollywood giants has gained steam, with the Walt Disney Co. in December unveiling a $52.4 billion deal to acquire large parts of 21st Century Fox, among other deals. Viacom and CBS split into separate companies in 2006.  

Analysts have estimated that cost synergies in a CBS-Viacom combination could reach $500 million to $750 million or more. RBC Capital Markets analyst Steven Cahall recently called CBS shares "a compelling buy" and his preferred way for investors to play the CBS-Viacom deal talks. "We think deal-related downside risk, including a higher premium, is pretty limited," he explained. "Even with a [sector standard] 30 percent premium for Viacom and 3 percent operating expenditures synergies, we estimate 23 percent upside to CBS shares."

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