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CBS-Viacom Merger Offer Highlights Price, Exec Structure

Wall Street analysts and an executive search expert capture what the first CBS deal means for negotiations between the parties.

As CBS Corp. and Viacom unveiled on February 1 that they formed independent committees of their respective boards to reconsider potential recombination, some Wall Street analysts and bankers wondered if a deal could be reached this time after a previous deal In 2016, the attempt had been abandoned.

After all, different views on the value of Viacom 2016 were understood as a central issue and questions about the leadership structure after a merger. And the chairman and CEO of CBS Corp., Leslie Moonves, has long emphasized that the company has no interest in enforcing deals, and none needs to be successful by relying on its financial performance over the years and years the popularity of its content refers.

With an independent committee of the CBS board now having filed its first offer for Viacom, which was after the stock market close on Monday, it seems clear that price and personalities will again be the key topics of the negotiations in the coming weeks see if they can reach an agreement to reunite the two companies that were split in 2006.

Eventually, sources familiar with the offer stated that the bid was below market price, based on a ratio of the two stocks, provided for Viacom, and demanded CBS Management headed by Moonves and COO Joe Ianniello To lead the merged company, with a source said the proposal focused on keeping CBS's existing leadership to keep things clear and simple along the old ADA "But you should never change a winning team."

But Vice Chair of Viacom and CBS Corp. Shari Redstone, whose family both controls National Amusements, is said to be running a potential deal with executives from both companies, namely Viacom CEO Bob Bakish, to leverage the expertise and knowledge available on both sides. It is widely known that she has highly valued Bakish's work and leadership style, which has been focused on people and creativity, since joining the role of CEO.

Analysts in initial reactions predicted that Viacom's independent board committee would likely decline the offered price. CBS's initial bid is too low and pushes for a premium, likely forcing CBS to find a way Bakish due to the early one Success of his team's turnaround efforts and knowledge and experience with Viacom's assets.

CBS Viacom's original offering was a price that dropped below the market value of more than $ 1

2.5 billion when it reached the end of last week. Wall Street observers predict tough negotiations. One banker, who spoke on the condition of anonymity, said the proposal under the market was surprising in that tenders were usually associated with an overcharge, but he emphasized that it was just the opening move of a longer chess game and CBS probably argued he used the Lowball launch offer to signal to Viacom and investors that it would be financially prudent in the deal negotiations.

Several analysts have said in recent weeks that they expect CBS to put a small premium on Viacom compared to the company's stock market valuation in a potential business.

"With Viacom [stock] down 2 percent since the beginning of CBS, we think investors … believe Viacom will be merged with a premium," wrote Steven Cahall, an analyst at RBC Capital Markets, in a report of 27 March. "There are arguments on both sides, and we conclude that Viacom is likely to receive a premium because: 1) CBS management has more control than price (within reason), and wants to make the deal and move on; 2 (3)) compensates Viacom for the impact of remediation efforts. "

Analyst Martin Martin of Needham & Co. said Tuesday that CBS is" below market " First bid "for the shareholders of CBS is good at short notice." After all, it does mean that the proposed deal "does not pay Viacom so much for Upside CBS", it makes it less likely that CBS will buy Viacom and thereby possibly back up investors who prefer CBS when
it was a pure "play Broadcaster, "and it" gives Wall Street credibility because a low purchase price supports CBS's claim that it does not need a larger scale to win. "

Beyond price tags, financial executives will also play a major role in conversation, analysts and analysts have widely predicted that CBS Moonves, widely regarded as one of the entertainment industry's most successful CEOs, and its current CBS contract until midway through Running 2021, the combined company would run for a while, under the first CBS offer, it's given a chance to do so for at least two years, something analysts believe Viacom expected and accepted.

What's expected to lead to more debate is Moonve's proposal. He would choose his top management team and retain his current deputy Ianniello as his lieutenant, while Viacom and Redstone reportedly want Bakish as the No. 2 executive at the merged firm

What Ianniello is talking about is his track record at the Zusammena working with Moonves and the general best practices in deal-making. "Every successful M & A transaction must be based on sound financial, strategic and market conditions, and every fundamental due diligence process takes into account senior management teams on both sides of the transaction," said William Simon, senior client partner of executive search firm Korn / Ferry International said THR . "Historically, the acquirer generally ends up with most leadership positions."

He continued, "In this case, CBS, under the leadership of Mr. Moonves, seems to be, and probably will be, the acquirer." He must take control of these leadership decisions himself, and he probably believes he has the stronger assets who controls a stronger balance sheet and a stronger future. "And Simon said that" Moonves seems to have leverage to require such control to make this deal. " Because "without the commitment of Moonves to remain with and lead the merged companies, the market may not support the transaction."

Ianniello not only has the support of his boss, but also the advantage of being able to refer to CBS Last year, he extended his employment contract until the end of June 2022. "Joe's role in CBS's success in recent years has been exceptional "Moonves said at the time when CFO CFO CFO was appointed CFO in 2013, but he is also much more than that. He is a tough negotiator, a great manager and someone who has energy, passion and a great Brings sense of teamwork. "

Plus, Ianniello has experience with Viacom." Prior to joining CBS and Viacom, he held various positions at the latter, including Senior Vice President, Treasurer and VP Corporate Development, and there is a financial incentive for CBS to place him in a top position. " His appointment allows him to go on a large payoff if CBS does not recommend him or his board fails to ratify him by December 31 or in some of them as president other cases, including "the appointment of a person other than you or Leslie Moonves as President and / or Chief Executive Officer of CBS (including, to avoid doubt, such appointment, which occurs either before or after an appointment of you as President) "and" a substantial reduction in your Position, title, office, reporting relationships, authorities, duties or responsibilities. "

What Bakish fused for a role in the Company means is its early success with Viacom and knowledge that it leads

A source said that a structure that THR was proposed by a media investor, namely the co-presidents of Bakish and Ianniello Moonves not under the terms of Ianniello's contract.

What remains for Bakish on the Viacom is his success in getting people to work on and with Viacom again after former CEO Philippe Dauman left. "New Viacom is not the old Viacom," journalist Alexia Quadrani wrote in a recent report. "Executives and agents we've met have been much more positive about working with Viacom, who describe the tone and tenor of the company as completely different, and Viacom cable networks and Paramount should be easier to trade and more talent-friendly."

A Wall Street expert who has expressed her support for Bakish as the best person to manage Viacom's business and expertise in the past is Wells Fargo analyst Marci Ryvicker. "We do not know how Les could manage these assets better than Bakish – to be honest," she wrote in a February report. "We honestly do not know what Les can do to better manage Viacom's assets than the plan Bakish has already implemented."

But she also suggested that investors and Shari Redstone might hold both Moonves and Bakish best was not to re-combine the companies. "We still are not fans of this potential business for both companies, we want Bakish on Viacom and Les on CBS, that's how we think it should be."

Others predict that it will take more negotiation to figure out a management facility that anyone can live with. "Given the diverging fortunes of both companies, we expect some very complex challenges in formulating a governance structure to reassure the various stakeholders, and in particular the three aforementioned parties, Moonves, Bakish and Ianniello," said CFRA research analyst Tuna Amobi ] THR . "In the near future, it seems Moonves has a better chance of being named a combined company because of his track record at CBS and his reputation with the investor base."

He went on to say, "Nevertheless, it would be I. I am very surprised if Bakish does not appear in a kind of temporary power sharing – given an international pedigree and a clear strategic vision for Viacom that could eventually lead him to the merged entity, Iannellos seems Rather a little miserable, but his contractual provisions could play in his favor, although it is unlikely that he is a "deal killer."

Given the fact that consolidation is a big issue in the entertainment industry And as business in the digital age changes rapidly, some say that a deal is more likely now than in the past despite the anticipated tough negotiations. "There is a clear bias for a degree," wrote Jefferies analyst John Janedis in a Monday report. "The challenges to the traditional media distribution models are all very real, although off-scale solutions do not necessarily guarantee successful outcomes."

And even if CBS and Viacom fail to reach a merger agreement, someone else might consider taking the companies for an alternative deal, the analyst suggested. Janedis explains: "It will be interesting to see to what extent a stalemate could affect other potential bidders for both assets."

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