CBS-Viacom Merger Inches Forward After Moonves Exit

Stabilizing key management is first on controlling shareholder National Amusements' docket as Richard Parsons emerges as a possible permanent CBS CEO.

If you were to ask a Wall Street analyst a year ago what would happen to shares of CBS Corp. if suddenly Leslie Moonves were to leave, you'd likely hear that the stock would tank because of his value as the CEO who took a slow-growth, old-media TV company and turned it into a cool investment again — one that has returned 1,200 percent since bottoming out nine years ago.

But Sept. 10, the first trading day after Moonves was officially ousted after a second group of women accused him of sexual abuse, the stock fell just 21 cents to $54.99, raising the question: What are investors thinking?

Mostly they're convinced CBS will merge with a larger company that will pay a premium to the current price, though that may be wishful thinking. The more likely scenario is that CBS and smaller Viacom will be one again, as they were before splitting on Dec. 31, 2005.

"The knee-jerk reaction is CBS must be in play. We believe that is incorrect and strongly believe a merger between Viacom and CBS will take place in 2019," says BTIG analyst Rich Greenfield.

"As a shareholder, I would like to see them look to sell the company," says Northlake Capital Management founder Steven Birenberg. "However, I have a hard time seeing a logical buyer that would be interested. If there is not another good choice, I support a CBS-Viacom merger."

Stabilizing key management is first on controlling shareholder National Amusements' docket as CBS searches for a permanent replacement for Moonves and has promoted COO Joe Ianniello to acting CEO. By most accounts, he's a strong executive who'd make an efficient chief, but he's tainted by his close relationship with Moonves, who is Hollywood's latest pariah in the #MeToo era.

Ianniello, 50, thought he was positioning himself as a successor to 68-year-old Moonves, but that, it turns out, was a mistake, and insiders say CBS will leave no stone unturned in its quest for a female to lead the company. If a man is hired, it won't be Ianniello.

In fact, even before journalist Ronan Farrow identified Moonves as an alleged serial abuser, Greenfield predicted he'd retire this year and Viacom and CBS would merge. Now, the analyst is simply adjusting his timeline to predict they'll merge later, as National Amusements agreed in a Sept. 9 settlement that it would not propose a merger for two years.

But that doesn't mean that CBS or Viacom won't do so, especially with CBS saying that former Time Warner CEO Richard Parsons and five others will join the board while Moonves and others depart, causing the loyalty to swing in favor of controlling shareholder Shari Redstone. Insiders suggest that Parsons would be a good CEO candidate to get a CBS-Viacom merger done, and then have Viacom CEO Bob Bakish take the reins of the combined company.

Greenfield suggests the two should marry in order to compete with AT&T-WarnerMedia and Disney as it gobbles up most of 21st Century Fox. But a combined CBS-Viacom would sport a market cap of just $33 billion. (AT&T's is $235 billion.) "While Moonves and his loyal No. 2 Ianniello were amazing cheerleaders of CBS stock, they simply did not have a serious long-term strategy," Greenfield says.

Barton Crockett of B. Riley FBR notes that CBS will do just fine sans Moonves because "what we have seen of other TV network groups rocked by #MeToo [Roger Ailes and Bill O'Reilly at Fox News, Matt Lauer at NBC News] is that strong performance can continue even when a vaunted, tainted star departs."

A version of this story appears in the Sept. 12 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.