Why This CBS-Viacom Merger Will Be Different From 1999

Sumner Redstone Viacom CBS Merge 1999 - Getty - H 2019

One big difference is that this year's deal will see CBS shareholders own a majority of the combined company, while in 1999, Viacom was the acquiring entity.

In early September 1999, Viacom and CBS unveiled a roughly $35 billion stock combination — at the time the largest U.S. media deal ever — which was completed in 2000. They then agreed to separate in 2005 and the separation became effective in 2006. Fast-forward nearly two decades, and the two entertainment companies are recombining

"There are lots of differences, but some is the same," Hal Vogel, CEO of Vogel Capital Management and a former Wall Street entertainment analyst, told The Hollywood Reporter about the parallels and differences. "Same is that the market was [at a high] and exuberant after a long bull run into 1999. In 1999, there was the same interest on building scale and same rather messy issues about combining managements."

Below is a closer look at the things that are similar and others that are very different this time around.

Viacom isn't the buyer this time.

One of the biggest differences is that the CBS-Viacom deal of 2019 will see CBS shareholders own a majority of the combined company, while in 1999, Viacom was the acquiring company.

The stock exchange ratio of well less than one CBS share per Viacom share is due to the former's larger market capitalization. "Viacom's performance has clearly been improving, but on a stand-alone basis we believe CBS is the stronger entity," Loop Capital analyst Alan Gould wrote in a recent note in reference to Viacom's perceived bigger challenges in the digital age. 

However, Viacom for now gets the lead position in the merged company's name: ViacomCBS.

Consolidation is in focus again, but this time there is also competition from tech giants

With AT&T having acquired Time Warner, Comcast having bought European pay TV giant Sky, and Walt Disney having taken over large parts of 21st Century Fox, boosting companies' scale through consolidation has been one of the big discussion topics on Wall Street and in Hollywood over the past couple of years. 

In 1999, mergers and acquisitions were also a big talking point. The Federal Communications Commission back then changed rules to allow one company to own more than one television station in a single market, leading media companies to explore deals. 

Back then, Viacom, the fourth-largest media firm in the U.S. at the time, struck the deal for CBS to become the sector's No. 2 behind Time Warner. 

This time around though, the consolidation takes place with the backdrop of technology and streaming giants — from Netflix and Amazon to Apple, Alphabet/Google and Facebook — competing for consumer time, attention and spending. Case in point: cord-cutting, which remains a key talking point for all entertainment industry executives.

As CBS Corp. acting CEO Joe Ianniello, who will oversee the CBS-branded assets after the deal closes, wrote in a staff memo on Tuesday: "There is a race to create more of the best content. We are already leaders in this regard, and today’s news will accelerate our global ambitions."

The Redstone factor — with a twist. 

Viacom in 1999 was led by Sumner Redstone, now 96, who had a reputation for enjoying the deal hunt. This time around, his daughter, Shari Redstone, vice chair of Viacom and CBS Corp., will be a key player in ensuring the companies' marriage goes well. 

Shari Redstone has said in the past that scale has benefits in the digital age when entertainment companies compete with streaming giants, such as Netflix, and technology powerhouses, such as Apple, Facebook and Amazon. "A combination of CBS and Viacom might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape," National Amusements said in 2016 when it called for the firms to explore a recombination, which failed, just like a similar request again failed in 2018.

This time around, National Amusements had promised not to push for another set of talks for a while, but the companies initiated talks themselves. However, Redstone is known to support the deal. 

Her father had touted the first Viacom-CBS combination in 1999 this way: "With Viacom and CBS performing at the top of their games, the timing for this could not be better. We both saw that we could create a media giant and that's what we both set out to do."  

He famously changed his tune in 2005 when he announced plans for resplitting the companies. Back then, the idea was for both companies' business portfolios to be more focused, in turn allowing their stocks to do better on their own. Viacom was seen as the growth company back then, while CBS was seen as the dividend-paying value play for investors. But CBS shares soon outperformed Viacom's and those of most other peers, and CBS started charging retransmission fees and developing other new revenue streams, while Viacom started facing ratings and carriage deal challenges in the digital age.

Observers say that Shari Redstone will want the joint management team to work together and prove that the combined company can provide financial upside and innovation in a competitive market that is changing quickly in the digital age.

She quoted her father in Tuesday's deal announcement, updated for the digital age, saying: "My father once said ‘content is king,’ and never has that been more true than today. Through CBS and Viacom’s shared passion for premium content and innovation, we will establish a world-class, multiplatform media organization that is well-positioned for growth in a rapidly transforming industry."

Management issues. 

Until Leslie Moonves was forced to leave his role as chairman and CEO of CBS late last year amid sexual harassment allegations, the management setup of a combined CBS-Viacom was always a key sticking point in deal talks.

This time around, the two companies agreed on key executive suite issues: Viacom CEO Bob Bakish will run the combined firm as president and CEO, CBS CFO Christina Spade will serve as CFO, and acting CBS CEO Joe Ianniello will oversee the CBS-branded assets as chairman and CEO of CBS.

The management question will be key as the 1999 marriage ran into problems when chairman and CEO Sumner Redstone kept clashing with CBS boss Mel Karmazin, who was named president and COO of the combined firm. The result: Karmazin exited in 2004.

Some see the fact that the popular and jovial Bakish and the successful Ianniello seem committed to working together to make the combination a success as a key win, which provides management continuity and avoids seeing Ianniello leave with a big payout he could get if not named CEO of CBS. Gould, for one, predicted that with Ianniello sticking around, "the Street will put a higher multiple on the combined company."

Ianniello highlighted the momentum and opportunities of the two companies now and once they unite. "At CBS, we have outstanding momentum right now — creatively and operationally — and Viacom’s portfolio will help accelerate that progress," he said. And in a staff memo he focused on the team work, writing: "Bob [Bakish] and I will ensure a smooth and steady integration of our two great companies."

Bakish in announcing the deal also focused on the unifying aspects, saying: "We unite our complementary assets and capabilities and become one of only a few companies with the breadth and depth of content and reach to shape the future of our industry."

And he highlighted a continued focus on working with the interests of various groups in mind: "I couldn’t be more excited about the opportunities ahead for the combined company and all of our stakeholders — including consumers, the creative community, commercial partners, employees and, of course, our shareholders.”

And Bakish highlighted in a staff memo: "Very importantly to me, CBS and Viacom are also a great fit. ... Make no mistake, together we aren’t just bigger — we are much, much better."