As long as CBS Corp. keeps fighting itself, it won’t stand a chance in a media world dominated by Netflix Inc., Walt Disney Co. and other powerful companies increasingly staking a claim on viewers and ad dollars. That’s even worse news for Viacom Inc., its sister company.
In this week’s episode of Disgraceful Corporate Governance, the drama between CBS Chief Les Moonves and Shari Redstone, the company’s controlling shareholder, turned ugly—even by their standards. CBS sued National Amusements, the vehicle through which Redstone and her ailing father Sumner Redstone have long owned CBS and Viacom, alleging that it has breached its fiduciary duty to shareholders. With the elder Redstone no longer able to speak, and communicating through an iPad programmed with some, uh, choice sound bites, his daughter has stepped into his shoes. She’s now sparring with Moonves over a plan to reunite CBS and Viacom, less than two years after giving the boot to Viacom’s previous CEO.
In its suit, CBS also asked the court to issue a restraining order so that Redstone can’t overthrow the CBS board, which has a crafty plan to issue a stock dividend to substantially reduce the Redstones’ influence and effectively kill any hope for a CBS-Viacom deal. Sumner Redstone’s iPad has a button for moments like these, but National Amusements used tamer language: It is “outraged” and committed “to a well-governed process,” adding that it had no intention to replace CBS’s board or force a deal that wasn’t supported by both sides. Instead, National Amusements says this is about “incidents of bullying and intimidation” related to a CBS director dating back to 2016 that it’s tried to handle privately, and that CBS’s suit “continues to enable and empower such conduct.”
And round we go.
We all knew the day was coming that the Redstones’ experiment to let CBS and Viacom carry on like quasi-public companies and give their executives the semblance of autonomy would come crashing down on them. What’s best for minority shareholders? It depends on which stock you own, and which scraps of information you believe. For Viacom, a CBS merger is undoubtedly the best-case scenario and now, probably, the least likely. CBS may or may not have better options.
Viacom shares dropped 7 percent Monday, while CBS shares climbed 3 percent. The complaint revealed that CBS could turn from acquirer to target should Moonves get his way. CBS alleges that Redstone shooed away an interested buyer, reportedly Verizon Communications Inc. That would make sense. While there may be an obvious cultural misalignment between Verizon and CBS, a tie-up between the No. 1 U.S. wireless carrier and the TV-network owner would be a natural response to the $109 billion pending merger between their rivals, AT&T Inc. and Time Warner Inc. Plus, CBS’s other competitors, Disney and Comcast Corp., have their own battle underway to get their hands on some $50 billion worth of 21st Century Fox Inc. assets.
If Verizon—or any other suitor—presents a more compelling offer for CBS than a merger with Viacom, Moonves is right to push for that outcome because it’d be the better route for CBS shareholders. At the same time, I’m not convinced that this is about Moonves wanting to sell CBS to Verizon, or anyone else for that matter.
Moonves can point to the fact that CBS’s All Access app and presence on digital TV services are driving growth and near-term optimism, but its relatively smaller scale and lack of a film studio are shortcomings in an age where bigger seems to better. A deal with Viacom would have given it a more diverse set of audiences and a larger international footprint, and in theory, Moonves could have found a potential successor in Viacom CEO Bob Bakish.
I always thought Verizon might bid for a combined CBS-Viacom down the road, rather than try to break up their talks. Viacom’s content and audiences are arguably a better fit in terms of the younger generations Verizon is trying lure via its Oath division, Go90 video service and upcoming over-the-top TV offering. But Verizon and others just may not want the headache of buying a turnaround-in-progress like Viacom.
Unless there are other buyers out there for Viacom and CBS, the war between Redstone and Moonves threatens both businesses at a time when they need a plan more than ever.
Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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