With Sumner Redstone’s health failing, the question of whether Viacom, Inc. (VIA, VIAB) will merge with CBS Corporation (CBS) has become de rigueur in media circles these days. Redstone might control both businesses, but nothing will happen without the buy-in from CBS CEO Les Moonves, who’s done an excellent job guiding the company into the fast-paced world of digital media.
The same can’t be said for Viacom, which has floundered in recent years under the leadership of CEO Philippe Dauman, Redstone’s friend of 30 years. Things have gotten so bad between the former friends that they’re now embroiled in a legal battle, which has Redstone trying to remove Dauman from the trust that will control both companies once Redstone dies.
No, the question here isn’t whether CBS and Viacom should merge, but rather, why in the world would Moonves want to return to the year 2005 when Redstone infamously split his empire into two companies to keep Moonves happy? Eight months after doing so, Redstone fired Viacom CEO Tom Freston — also the co-founder of MTV — for failing to acquire MySpace, and inserted Dauman as its CEO.
Since Dauman’s became CEO in November 2006, Viacom stock’s achieved a total return of 22%. Contrast that to the SPDR S&P 500 ETF Trust (SPY) and CBS which are up 55% and 92%, respectively, over the same period.
Sure, there’s a case to be made that Viacom and CBS should never have been split in two, but now that the genie’s out of the bottle, does it really make sense to go back and rectify that?
Independent research firm MoffettNathanson, which specializes in media and telecom research, believes the recombination should happen:
“Nothing will be solved until the pieces are put back together again. We just aren’t sure how or when that happens.”
Frankly, if you’re a CBS stock holder, you do not want anything to do with Viacom.
While this is only my opinion, some institutional investors who own both Viacom stock and CBS stock are hesitant to rubber stamp the merger.
“We would have to assess it more from the side of CBS to make sure they weren’t investing in a bad deal,” said president and portfolio manager of Portfolio Family of Funds Michael Cuggino.
While Viacom does have some interesting assets in its stable, most notably a movie studio in Paramount Pictures (something Moonves wanted in the separation back in 2005, but Redstone refused to hand over), Pivotal Research media analyst Brian Wieser also wonders if a merger makes sense:
“I’m not so sure that CBS shareholders want Viacom back … You can put two strategically useful assets together but if the management does not have a vision for what they want to do with it, then it would be a waste of time.”
Moonves has a better option at this point: Convince Redstone and his daughter, Shari, whose claim to the throne grows stronger every day, that Viacom should be sold piece-by-piece to the highest bidders. CBS could acquire Paramount and Viacom shareholders could extract the maximum amount of value for MTV and the rest of Viacom’s assets.
Under this scenario, everyone wins. Well, Dauman doesn’t, but he’s got $425 million reasons to go along with it.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.