CBS – Viacom Merger Talks Come To An End As Redstones Lift Support
Viacom‘s (NYSE:VIA) stock price has declined almost 7% since news of the Viacom – CBS (NYSE:CBS) deal not materializing came out yesterday. The Redstone-controlled National Amusements Inc (NAI), a holding company with an 80% stake in both Viacom and CBS, withdrew its support for the deal, stating that this was not the right time to merge the companies despite its initial desire to make it happen in September. However, NAI signaled faith that Viacom would turn around its fortunes on its own. ((Redstone Firm Pulls Support for Viacom-CBS Merger, wsj.com, 12 Dec 2016)) The primary reason behind this decision could be Shari Redstones’s faith in Bob Bakish, who was appointed as the permanent CEO and President of Viacom. He was heading Viacom’s international business and was serving as the interim CEO and President of the company prior to this announcement.
This scrapping of a possible merger should work fine for CBS, as it wasn’t pitching seriously for the merger in the first place. CBS is already doing well with improving ratings for most of its channels, and just spun off its poor performing radio business. If the deal had gone through, it could have been a mixed bag for CBS shareholders, as the company is in a very strong position compared to Viacom.
On the other hand, Viacom has been suffering due to a decline in ratings and near-zero profitability of its movie business. The company is in a big mess due to continued uncertainties with respect to its top management. Viacom needs to pay down or refinance about $2 billion of debt over the next two years, which would imply less cash left for investing in its business. Viacom also needs significant investments to revive its dwindling media networks and film business. The company has already lost more than 50% of its market value over the past two years owing to problems in its core business.
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What Next For Viacom?
Bob Bakish has already started taking steps since he took the CEO seat. He is reportedly looking to improve relations with affiliates and is working on a plan to turn around MTV. Viacom also bought Televisión Federal S.A. in Argentina for $34 million in November, which could help the company accelerate its growth strategy across Latin America. The company could be looking at inorganic growth beyond the competitive U.S. media market.
As far as the Paramount division is concerned, it could make sense for Viacom to make some international acquisitions to boost the business. However, Viacom’s $12 billion debt pile makes it unlikely to spend top dollar on big acquisitions. The company could also think of selling a stake in the business, as proposed by the company’s ousted CEO Philippe Dauman, to raise cash. However, this proposition was opposed by Sumner Redstone. ((Abandoned CBS, Viacom merger leaves scale issue lingering, reuters.com, Dec 13 2016))
Please refer to our complete analysis for Viacom and CBS
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