The Latest CBS-Viacom Drama
CBS reportedly bids under market value for Viacom, and the deal may hinge on management team compensation.
The Redstone-fueled drama at CBS (CBS) and Viacom continues as insiders on both sides leak rumors about the potential reunion of the two firms. The first set of rumors came out over the holiday weekend from Bloomberg that reported CBS would soon make an initial bid for Viacom. According to multiple media reports, the bid from the CBS special committee was supposedly made on Tuesday in the form of an all stock offer that valued Viacom below its current market valuation of $12.4 billion. The bid also tabs CBS CEO Les Moonves to lead the combined firms with CBS COO Joe Ianniello retaining his number two position.
We expect the independent board at Viacom to reject the initial offer since we think that the board and management (along with the Redstone family, the controlling shareholder) believe that the firm is on the path to recovery and the current share price still undervalues the firm’s long-term potential. While we think a deal is slightly more likely than not to occur due to the insistence of Shari Redstone, we believe that CBS is unlikely to pay a large premium and that Moonves might leave if he is not given the right to select his own team. As a result, the Redstone family may decide to give management more time to turn around Viacom thus increasing its share price and possibly earning a premium in a future deal. We are maintaining our narrow moat ratings for both firms along with our fair value estimates of $71 for CBS and $35 for Viacom.
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Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.