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Moonves investigation creates two ways Bob Bakish could end up running a combined CBS-Viacom

Key Points
  • There are two logical paths that lead to CBS and Viacom merging, possibly run by Viacom CEO Bob Bakish.
  • The first path involves National Amusements CEO Shari Redstone removing CBS board members.
  • The second path involves board members changing their minds on a merger being in the best interest of CBS shareholders if Moonves departs. 
Viacom President and CEO Bob Bakish and Les Moonves, CBS Chairman and CEO of CBS.
Getty Images | CNBC

When National Amusements' controlling shareholder Shari Redstone pushed CBS and Viacom to merge earlier this year, her plan was simple: CBS CEO Les Moonves would run the company and Viacom CEO Bob Bakish would be his second-in-command.

Now there are two paths where Bakish could get the chance to run a combined company himself.

CBS balked at the deal earlier this year precisely because Bakish was floated as Moonves' No. 2. CNBC reported in April that Moonves wanted Joe Ianniello, his current COO at CBS, to be his right-hand man at a combined company. Redstone wanted Bakish, who has helped get Viacom in better financial shape since he was named full-time CEO in December 2016.

CBS announced Monday afternoon that the board would hire "outside counsel to conduct an independent investigation" on accusations that Moonves had sexually harassed female employees over the years. It made no decision on Moonves' fate and pushed back the company's annual shareholder meeting to a future undetermined time.

Given the allegations in Ronan Farrow's New Yorker article and the tensions between Moonves and Shari Redstone, playing out in a still-pending legal battle over control of CBS, Moonves's future as CBS's CEO is questionable at best.

So, how do we get from where we are today to a combined CBS-Viacom, possibly run by Bakish?

There are two likely paths.

Path 1: Redstone removes board members

The CBS annual meeting was originally scheduled for May, then was set for August 10. It's not clear who on the board pressed for the postponement.

But there's another series of important dates on the calendar -- in early October. That's when a trial is set to determine whether CBS can move forward with the dividend that would dilute National's voting control over the company from 80 percent to 17 percent.

As it currently stands, Redstone has the power to remove CBS's board. But the trial could strip that ability.

If the company's annual meeting is held before October, she could also vote to remove directors seen to be complicit with Moonves, said BTIG analyst Rich Greenfield. The sexual harrassment charges could give her air-cover to clean house on a board that appears to have turned against her and sided with Moonves.

If this happens, a new board could then restart merger talks with Viacom.

CNBC reported CBS and Viacom had agreed on a price during the company's merger talks earlier this year. That suggests the sides could be open to hammering out a quick deal if Moonves were removed.

Path 2: Moonves resigns or is fired

If Moonves resigns or the board decides to fire him after investigating, the existing directors could decide that putting the companies together was now in the best interest of CBS shareholders.

CBS hasn't outlined a succession plan for Moonves, even though Moonves insisted during merger discussions that Ianniello should stay as his second in command. Still, Ianniello can resign "with good reason" if he isn't the next CEO of CBS, according to his contract, suggesting he has been groomed to take over for Moonves. 

But if Moonves leaves, the CBS board (prompted by Redstone) may decide the best way to reset the culture at the company and to derive future value is to push the company together with Viacom and install Bakish as CEO.

This would be an extreme about-face from May. However, if Moonves himself was the primary obstacle to a deal, the board could argue his absence has changed the value proposition enough that a merger is now in the best interest of CBS shareholders.

CBS and Viacom would then, again, hire special committees to review a deal, and CBS would need to add new independent directors, said Greenfield.

This path may also increase the chances that at least some members of the CBS board keep their jobs.

The future of a combined CBS-Viacom

Bakish may not be the best long-term CEO for the company, said Greenfield, who suggests a combined company may want to look for external hires. But he is the logical choice "given a lack of anyone else," he said.

While both CBS and Viacom could stay independent, Greenfield believes putting the companies together is still the best idea for both companies. There are few, if any, buyers for Viacom, and "I literally can't think of any buyers" for CBS, Greenfield said. Media companies are huddling together in the belief that size will help them stave off competition from digital giants like Netflix and Amazon. Recent mergers, like Fox's $71.3 billion sale to Disney and AT&T's $85 billion megadeal for Time Warner (pending appeal) have increased the pressure.

At this point, the only significant dance partners CBS and Viacom have may be each other.

After coming together, CBS and Viacom could begin to roll up other media companies, such as Lions Gate and MGM, to build up heft, Greenfield said.

"Both companies need greater scale," said Greenfield. "CBS and Viacom should merge."

CBS takes no action against CEO Les Moonves for now