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UPDATE 3-Redstone weighs CBS-Viacom merger with or without Moonves

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NEW YORK, April 11 (Reuters) - As she seeks to combine CBS Corp and Viacom Inc into a single company, media mogul Shari Redstone risks losing her most talented executive, whose leadership could be critical to ensuring the proposed merger succeeds.

Such is the difficulty facing Redstone. Her longtime friend and business ally, powerful CBS Chief Executive Les Moonves, has emerged as one of the biggest obstacles to a potential CBS-Viacom tie-up, according to people familiar with the matter. Concerns are that his objections could either doom the transaction or that he might not lead the new entity, the people said.

Moonves is chafing at Redstone's insistence on installing Viacom's CEO as his second-in-command and likely successor of a merged company, the people say. CBS and Viacom announced in February that they were exploring a potential deal and in recent weeks have begun negotiations.

At stake is the future of Redstone's media empire, which is facing pressure to scale up at a time when competitors are gobbling rivals to stay relevant. Her family's company, National Amusements Inc, controls both CBS and Viacom. Redstone favors merging the two to gain size and leverage in negotiating better programming prices from traditional cable and satellite customers, and to better compete with emerging players such as Netflix, the people said.

But she may have to decide if she is willing to do it without her top captain to steer the ship.

Redstone wants Moonves to run the combined company, according to the people familiar with the situation, all of whom wished to remain anonymous because discussions are confidential. But she is contemplating moving forward without him at the helm if no agreement can be reached to keep him aboard, said one of the people close to the situation.

With over 25 years at CBS and more than a decade as CEO, Moonves has proven adept at navigating a difficult media landscape. Under his leadership, CBS has been a top performer in its sector with some of the most popular shows on television. CBS stock is up over 116 percent on his watch. At 68, Moonves is an industry legend and still at the top of his game.

"National Amusements has tremendous respect for Les Moonves and it has always been our intention that he run a combined company," the company said in a statement on Wednesday.

Still, Redstone is concerned about succession planning, the people said. She wants 54-year-old Bob Bakish, whom she chose two years ago to lead a turnaround at Viacom, to be president and chief operating officer of the combined company; Bakish would report to Moonves, with the expectation of succeeding him, the people said.

"Shari values Les, but we are now in a world of: 'What happens after Les?"' said one of the people close to the situation.

Moonves and Bakish declined to comment through representatives. Viacom declined to comment.

"The industry and the marketplace know Leslie Moonves' record and we think it speaks for itself," CBS said in a statement.

Moonves, meanwhile, wants his longtime lieutenant, CBS Chief Operating Officer Joseph Ianniello, to take the No. 2 spot at the combined company, according to people familiar with his thinking.

The men have forged a successful working relationship that could prove key to melding two very different entities. Moonves and Viacom's Bakish, in contrast, have met just a handful of times, according to people familiar with the situation.

"Les is saying 'I want to make this successful ... but let me have my team,"' one of the people said.

OLD HAND, NEW BLOOD

Despite recent tensions, Redstone has long been close to Moonves, who was selected by her father, Sumner Redstone, to be CEO of CBS when it was spun off from Viacom in 2006.

She and Moonves have gone to football games and movie premiers together. And she has said that Moonves was one of her staunchest supporters amid highly public legal battles, including a feud with Viacom's former CEO, Philippe Dauman, and clashes with former girlfriends of her elderly father seeking a share of his riches.

"I have a great relationship with Les," Redstone, 63, told a Recode conference last year.

Redstone has also taken a shine to Bakish since plucking him from Viacom's international division in 2016 and installing him as the firm's chief executive. As CEO, Bakish engineered a turnaround plan for the company's struggling movie studio and TV networks and boosted badly sagging staff morale, keeping Redstone in the loop through it all, people familiar with the situation said.

That is a big change considering that Redstone for years was unwelcome at Viacom under former CEO Dauman, the people said. A bid by the Redstones to reassert control culminated in Dauman's departure in 2016.

The media heiress is now a familiar face in the hallways of Viacom's New York offices. She has attended employee town halls and company events, including the relaunch of the MTV show "Total Request Live."

Bakish and Redstone talk at least weekly, and he includes her in all major decisions, according to people familiar with the situation. "He brought her in and solicits her thoughts, and in some ways that was the way to her heart," said one person close to Redstone and Viacom.

Redstone believes Bakish should succeed Moonves because he has executed on his turnaround plan and has a vision for the combined company that he is excited about, the people familiar with the situation said.

NOT A DONE DEAL

There are other issues that could scuttle the merger.

The special board committees that CBS and Viacom have formed to negotiate a deal currently disagree about how many CBS shares Viacom shareholders should receive.

CBS has offered 0.55 of its shares for every Viacom Class B share, according to the sources. Viacom countered last week that it wanted 0.68 CBS shares for every Viacom Class B share, the sources said.

What is clear is that Moonves is seen as a major asset to the combined company. Many analysts expect CBS' stock to take a hit if he is not part of any new leadership team.

If the current standoff continues, Redstone may have to decide whether losing Moonves is worth going to the mat for Bakish, the up-and-comer.

"They are both stars," Redstone said of CBS and Viacom at the Recode conference last year. "And I love them both."

(Reporting by Jessica Toonkel in New York; editing by Greg Roumeliotis, Marla Dickerson and Jonathan Oatis)