As CBS Corp. nears a formal acquisition offer for Viacom, the actions of two key players — controlling shareholder Shari Redstone and acting CBS CEO Joe Ianniello — will be closely watched in the coming weeks.
Redstone’s moves are under scrutiny because of the potential for litigation surrounding a deal that some have criticized as CBS coming to the rescue of Viacom, at the expense of CBS’ independent shareholders. Ianniello, meanwhile, is likely to face a decision soon about whether to extend his contract again on a short-term basis to help steer CBS through a possible merger. And there is increasing talk about the reunification of CBS-Viacom being the first step in a larger campaign to buy or sell in order for Redstone to better position CBS and Viacom for the future in a rapidly changing media marketplace.
Redstone, who is vice chair of CBS and Viacom, has to tread carefully during any negotiations between CBS and Viacom because she is bound by a legal settlement reached last year with ousted CEO Leslie Moonves and other six other former members of the CBS board of directors. That settlement spells out that at least two-thirds of the independent directors of CBS Corp. have to support a merger with Viacom in order for a deal to happen. The agreement settled a bitter legal skirmish in which the CBS board sought to strip Redstone of her voting control of CBS by alleging that she engaged in actions that were contrary to the interests of other shareholders.
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The notion of bringing CBS and Viacom back together – media giants that were merged by her 96-year-old mogul father, Sumner Redstone, in 2000 but split up again in January 2006 – has been polarizing among investors. Some Wall Street analysts have argued forcefully for the logic of a deal while others believe CBS Corp. is better off without Viacom, which has been walloped in recent years by declines in its core cable business. CBS and Viacom have been nudged into merger talks by the National Amusements Inc. twice during the past three years. During the most recent round, in early 2018, CBS made a low-ball offer valuing Viacom at about $12 billion while Viacom sought a pricetag closer to $14.7 billion. With an improving financial picture and stronger leadership under CEO Bob Bakish, Viacom’s board is sure to push for a premium. As of Wednesday, Viacom’s market cap stood at $12.5 billion. The stock has been trending up as CBS deal rumors grow louder.
Redstone and Redstone attorney Robert Klieger are the only non-independent directors on the 11-member CBS board through their affiliation with NAI, the company established by Sumner Redstone. NAI has overwhelming voting control of CBS and Viacom, but under the two-year term of the Moonves settlement, NAI cannot throw its votes behind a merger unless two-thirds of CBS independent directors favor a transaction. After the settlement term ends, NAI has pledged to support a merger only if a majority of independent directors concur.
Shari Redstone has been vocal about her belief in the importance of strong corporate governance for public companies. Since 2016, she’s also made clear her hope that CBS-Viacom will be brought together again. In her role as president of NAI, she has overhauled the boards of Viacom and CBS during the past three years out of a desire to bring more experienced media business leaders to boards that were seen as having become too cozy with former CBS CEO Moonves and former Viacom leader Philippe Dauman. Critics say Redstone has packed the panels with like-minded people who will support her vision of reuniting CBS and Viacom. Sources close to the situation say Redstone has sought to steer clear of the CBS board’s recent deliberations about M&A options including Viacom and other targets such as Lionsgate’s Starz.
Shareholder lawsuits are nothing new in major transactions involving public companies. But the fact that NAI faced legal action last year by the former CBS board of directors over fiduciary concerns virtually guarantees there will be aggressive litigation this time around.
If there are credible legal challenges, the Delaware courts will be the most important arbiter, according to Charles Elson, director of the John L. Weinberg Center for Corporate Governance at University of Delaware. CBS and Viacom are both incorporated in Delaware.
Elson said the hurdle stems from Viacom and CBS’ status as controlled companies with a dual-class stock structure in which the Redstone family holds preferred shares that give them overwhelming voting power in the company. The deal that is expected to be an all-stock transaction will require a vote of CBS and Viacom shareholders, although NAI has enough votes to push it through regardless.
“When a Delaware court looks at these things they usually do some kind of analysis as to the fairness of the transaction to both groups of the company’s shareholders,” Elson says. “The court will look at the voting patterns among the minority shareholders and whether they got a majority of the minority shareholders.”
Redstone is also understood to have made it clear to board members that she is open to other M&A possibilities including the sale of all or a portion of the enlarged CBS-Viacom. Indeed, insiders are increasingly speculate that CBS and Viacom will try to pull off a speedy integration in order to position the company for other transactions, as either buyer or seller.
That’s where Ianniello could be a big asset to the company if he agrees to stick around. He is well-regarded on Wall Street as a high-finance whiz who has deftly steered CBS through a series of acquisitions and spinoffs during the past decade. His skills and inside-out knowledge of CBS’ operations would be invaluable if CBS-Viacom want to move quickly on the integration and playing the larger field. Discovery Inc., Sony Pictures Entertainment and some combination of Lionsgate or Starz are seen as prime targets if the company goes the route of consolidating rather than seeking another large partner.
Viacom CEO Bob Bakish is seen as having the inside track on heading the combined company.
Ianniello had been CBS’ CFO and chief operating officer under Moonves. He was named acting CEO in September when Moonves was ousted as allegations surfaced of sexual misconduct in his past. Sources say there is little chance of Ianniello staying with the company under Bakish for the long term, but there could be a scenario in which he sets a lucrative short-term extension to steer the transition. In April, Ianniello extended his contract to run through year’s end amid signs that CBS was preparing for another run at Viacom. If a merger materializes, the regulatory review and closing process will surely extend into 2020.
As the mating dance between CBS and Viacom begins anew, there are no shortage of unanswered questions and players to watch.
(Pictured: Shari Redstone, Joe Ianniello)