CBS/Viacom merger has questionable upside – analysis

21 May 2018 - 12:00 am UTC

Even if National Amusements (NAI) is successful in its attempt to recombine CBS [NYSE:CBS] with Viacom [NYSE:VIA.B] after board room drama last week, the net result is unlikely to turn out well for the investor, said a former CBS executive and a veteran media banker.
A potential challenge for the merger is that Shari Redstone—who now leads NAI after the decades-long tenure of her father Sumner Redstone—has yet to articulate a strategy under which a combined CBS-Viacom group can effectively compete in a media world that will be increasingly driven by over-the-top (OTT) video, said the former executive, who owns shares of both CBS and Viacom.
Likewise, NAI’s response to CBS’s fight for independence, and a forced merger with Viacom, could push out the CEO of CBS, Les Moonves, who is credited with much of the success of the business.
Following’s Disney’s [NYSE:DIS] USD 52bn deal to acquire key assets from 21st Century Fox [NASDAQ:FOXA] late last year, Shari Redstone revisited a plan to recombine CBS and Viacom in January by asking the firms to consider the options. CBS and Viacom’s boards have formed special committees to review the merger that would combine the venerable broadcaster with a collection of cable TV channels, theme parks and the Paramount movie studio.
In making a decision to reunite the two companies, aside from a general desire to respond to the Disney-Fox transaction, Shari Redstone and NAI left open the question of why a united CBS-Viacom entity would be able to boldly make its way forward at a time when traditional-media revenue streams are at risk, the former CBS executive said.
NAI has not outlined an OTT strategy for the combined company since it would leave this strategy to the company, said a person familiar with the matter. The person said the controlling shareholder does believe that a combination would allow CBS and Viacom to provide a compelling direct-to-consumer video offering.
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by David B. Wilkerson in Chicago and Jonathan Guilford in New York