Home>Entertainment>Shari’s Choice: Should Redstone Give Up on a CBS-Viacom Merger and See the Light of a CBS-Discovery Deal?
Entertainment

Shari’s Choice: Should Redstone Give Up on a CBS-Viacom Merger and See the Light of a CBS-Discovery Deal?


The saga of the Redstone family has in recent years become almost post-Shakespearean. For decades, the now 95-year-old Sumner Redstone ran his media empire like an omnipotent jefe unwilling to relinquish control. Occasionally, he was visionary. In 2006, when he thought that CBS no longer made sense under Viacom’s protective armor, he spun it out as its own publicly traded company, to be run by programming impresario Les Moonves, unlocking billions in new value for investors. Other times, his touch appeared to have atrophied. After Viacom lost out on MySpace, the once-seemingly can’t-miss social-media platform, Redstone fired Tom Freston, the innovator behind MTV, and replaced him with his protégé and attorney, Philippe Dauman. By 2016, as Viacom’s portfolio of networks dwindled, Redstone moved again. During an examination by the geriatric psychiatrist Dr. James Spar, Redstone said that his old lackey was doing a “bad job.” (Les Fagen,_ Dauman’s attorney, argued that Redstone’s remarks were the product of “manipulation.”) In a contemporaneous statement, Spar said that Redstone made clear “he makes all the decisions about Viacom and CBS.”

Of course, that would soon change, given the patriarch’s declining health and the rise of his once-estranged daughter, Shari Redstone, who inherited a very different media environment than the one her father had helped create. For one, his mighty empire was no longer indomitable. Viacom’s top brands, such as MTV and Comedy Central, had receded in the zeitgeist. CBS, while home to incredibly valuable assets such as Showtime and its eponymous television network, no longer appeared large enough to compete with the Silicon Valley streaming behemoths (Netflix, Amazon) and a new generation of Franken-legacy behemoths (AT&T’s WarnerMedia and Disney+). The media industry had become a game of sharks (and minnows)—an economic ecosystem that, to steal a line from Chase Carey, the former chairman of 21st Century Fox, requires either super-scale or uniquely qualitative assets. Shari needed the former. And so she twice embarked upon on a plan to recombine CBS and Viacom, the assets that her father split apart 13 years ago.

At first, her chief obstacle was Moonves, who didn’t want CBS burdened by what he apparently thought were a bunch of tired, market-share-losing cable channels. But Moonves’s alleged sexual misconduct, reported late last year, eliminated him from the picture. (Moonves has denied wrongdoing.) By the end of last year, Shari appeared to have yet another free path to renew the merger discussions between CBS and Viacom.

Even opponents have come to admire her tactics. She settled nettlesome lawsuits. She tamed Joe Ianniello, Moonves’s former protégé, who has been running CBS on an acting basis, and would presumably like to get the gig full-time. She also has had a long and productive relationship with Viacom C.E.O. Bob Bakish. And, as the chief representative of National Amusements, which owns nearly 80 percent of the voting stock of both companies, she has presided over the remaking of both companies’ boards. Her only apparent remaining obstacle, agreed upon as part of Moonves’s separation agreement from CBS, was a contractual stipulation that National Amusements would not initiate a merger between the two companies until after September 2020. But the boards, and their wise counsel, are no doubt taking comfort from the loophole they’ve found that allows for the conversations to happen because they were not initiated by National Amusements and Shari.

Word of the latest renewed interest in a recombination between CBS and Viacom came via CNBC, in a piece published January 31. The article also contained a new twist in the saga: Discovery Inc., home to 19 digital channels including the Food Network and OWN, Oprah Winfrey’s eponymous network, was also suddenly in the mix of strategic considerations for CBS, either before or after it tried to consummate a combination with Viacom. (Discovery, which denied it is interested in a sale, is partly owned by Advance, Condé Nast’s parent company. Spokespeople from CBS, Viacom, and National Amusements declined to comment for this article.)

What’s behind these various corporate machinations? A mega-merger could allow Shari to find some form of tax-free liquidity for National Amusements and its roughly $5 billion stakes in CBS and Viacom, while also enhancing her chances of becoming a bigger and more powerful media mogul. She knows the CBS television network and Showtime, its premium pay network, are valuable assets in the ongoing media-merger chess matches, and she seems more determined than ever to get as much value as she can for her family, presumably in as tax-efficient a way as possible.

But unlike a CBS combination with Viacom, a CBS combination with Discovery actually makes sense for CBS shareholders and for CBS. It’s a conclusion I come by honestly as a onetime Wall Street M&A banker focused on the media and telecom industries. (Don’t @ me.) There are a number of reasons why the combination makes sense, and I’ve laid them out here.

First, there is a nice demographic fit between the two companies, both of which have sizable viewership in the desirable 18–54 age group, while four of Discovery’s channels—HGTV, TLC, Discovery, and Investigation Discovery—are among the top 20 channels watched on television, according to IndieWire. There is also a nice geographic fit between the two companies: CBS and Showtime are largely domestic networks, while Discovery has a made a large, and reasonably successful, international push through a variety of channels now broadcasting overseas, as well as its ownership of a number of large European broadcast networks, and the rights to broadcast the Olympics in Europe. This could help a combined CBS-Discovery leapfrog over Comcast, which just paid a bundle for Sky, which is mostly a U.K. business.

Discovery also has the rights to broadcast golf overseas, which would fit well with CBS’s domestic golf prowess. Together, Discovery and CBS could be a global sports juggernaut.The combined company would also have greater clout with advertisers and with the cable giants, where size is essential for channel placements on the dial and for re-transmission fees. Discovery could help Showtime with its streaming presence and it brings more than 8,000 hours of original programming—on topics such as food, science, and home, to say nothing of Oprah—to a streaming world.

To be sure, there are plenty of deal-related obstacles. For instance, would CBS buy Discovery or would Discovery buy CBS, or could some form of merger of nearly equals be constructed? CBS has a market capitalization of around $30 billion, including about $9.5 billion of debt. Discovery’s market capitalization is about $31 billion, more than half of which is debt. Figuring that out is not hard, and Wall Street investment bankers would salivate at the chance to create a $60 billion-plus media giant.

One important question for Shari Redstone and the CBS board of directors: who to name as the C.E.O. of the combined company? On the one hand, it should be relatively easy. Discovery C.E.O. David Zaslav, who has had the job since 2007, has proven to be a world-class media executive, in the same league as Moonves was, once upon a time. (Their gargantuan pay packages were also similar, with Zaslav, a.k.a. “the Zas,” racking up total pay of around $112 million in the past three years.) The market would probably dance a jig if Zaslav were named C.E.O. of the combined company.

One would think Zaslav would be an obvious and welcome choice, given that CBS is currently engaged in a highly publicized C.E.O. search following Moonves’s departure. (CBS has said the search will be completed by the end of the first quarter.) Alas, the situation is not that simple. (These things often are not.) Ianniello now has a legitimate claim to the job through savvy personnel moves such as naming Susan Zirinsky head of CBS News and Bill Owens head of 60 Minutes. He also has been a calming force around CBS. But Ianniello was Moonves’s loyal No. 2 and that could be an ongoing problem for Shari, despite his solid performance. She prizes fealty, and has long wanted Bakish to succeed Moonves once CBS and Viacom were combined. She may still want Bakish to lead CBS, and that alone could scotch a CBS merger with Discovery. Certainly Bakish would be much easier for Shari to control than Zaslav.

Of course, if CBS and Discovery were to combine, there is the obvious matter of what becomes of Viacom in the aftermath. That’s not as dire for Viacom as it may seem at first blush. Bakish can continue improving the operations at the company and making bolt-on acquisitions, such as its interesting purchase of Pluto TV for $340 million. Viacom will live to fight another day, either as part of a rejuvenated CBS-Discovery when the time is right or as part of another media behemoth.

The bigger question for Shari comes down, once again, to whether she is willing to consider what is best for the non-Redstone CBS shareholders. The Redstones own around 10 percent of the economic interest in CBS (and only a tiny fraction of Viacom’s economic shares), but control what happens at both companies through their voting shares. In the past, Shari has appeared reluctant to take into account the concerns of CBS’s minority shareholders. But if on the off chance she is willing to do that this time, there would be rewards aplenty for all CBS shareholders in a combined CBS-Discovery with Zaslav at the helm. And that should be the main focus of the CBS board, shouldn’t it?



Source link

Review Overview

Summary

Leave a Reply

Your email address will not be published. Required fields are marked *