CBS-Viacom merger talks are about to get serious, but CBS board has concerns about leadership

Key Points
  • CBS and Viacom are expected to begin seriously discussing a merger next week after CBS's board meets tomorrow.
  • There is concern on the part of the CBS board about taking Viacom's management team and paying a premium for Viacom given the company's history of underperformance.
  • Shari Redstone, the controlling shareholder of both CBS and Viacom, prefers Viacom CEO Bob Bakish become the CEO of the combined companies.
Shari Redstone, chairman and chief executive officer of Cinebridge Ventures Inc.
Michael Nagle | Bloomberg | Getty Images

CBS and Viacom are expected to begin seriously discussing a merger next week, culminating months of speculation about an eventual combination, according to people familiar with the matter.

CBS is holding a meeting of board members tomorrow, and though no formal announcements are planned, the board of directors is expected to decide to increase the level of seriousness around discussions with Viacom, said the people, who asked not to be named because the discussions are private.

CBS and Viacom know each other well, which could speed along discussions over the next few weeks about an exchange ratio, board composition and management leadership positions.

Still, there are still unknowns that could bog down the talks.

Bob Bakish, the Viacom CEO, is expected to be the head of a combined company, said the people. In a typical deal, the combined company would pick a CEO then let that person fill out the rest of the management team. But here, there are several reasons why the combined company would appoint and name several other top execs at the same time as picking a CEO.

First, the CBS board lacks confidence in Bakish's team, given their dearth of experience running a broadcast network and a premium movie channel, said two of the people. (CBS owns Showtime and has help preliminary talks to acquire Starz from Lions Gate. Talks about acquiring Starz are expected to continue but may not happen until after a CBS-Viacom agreement, said people familiar with the matter.)

The CBS board particularly wants David Nevins, who was named CBS's new chief creative officer in 2018, to get a high-profile job in the new regime, said the people.

While current CEO Joe Ianniello is well-liked at CBS, his ties to former CEO Les Moonves may hurt his chances to stay at a combined company, the people said. Ianniello was first Moonves's chief financial officer and later chief operating officer.

Further, the CBS board is bracing for a possible shareholder lawsuit if a deal is consummated. Some members of the board are worried that paying a premium for Viacom and taking its CEO will be seen as overpaying for an underperforming company, one of the people said. Viacom shares are down about 58 percent over the past five years.

Taking Viacom execs along with Bakish could strengthen any such lawsuit -- the reasoning being that CBS should not take the management team of a company that has long underperformed. So CBS executives could win out over their Viacom equivalents for jobs underneath Bakish, the people said.

If Nevins becomes the chief creative officer for the combined company, Bakish could look outside CBS for a chief operating officer, two of the people said.

So -- a complicated leadership situation overall.

While Moonves's departure created a leadership vacuum at CBS, the company's streaming services have surpassed internal signup goals, with 8 million people signing up for CBS All Access and Showtime. CBS said earlier this year that its next goal is to reach 25 million domestic subscribers by 2022. That could be good news for the CBS interactive team, led by Jim Lanzone.

CBS has no plans to combine its Showtime and CBS All Access streaming services like WarnerMedia is doing with HBO and its Turner and Warner Bros. content, according to a person familiar with the matter.

Spokespeople for CBS and Viacom declined comment.

CBS board is preparing for talks with Viacom, sources say