December 13, 2016 / 6:07 AM / 3 years ago

Abandoned CBS, Viacom merger leaves scale issue lingering

(Reuters) - Sumner Redstone’s holding company National Amusements Inc’s decision to abandon a merger of its prized media assets, CBS Corp and Viacom Inc, leaves them under pressure to buy or partner with peers in an industry where scale matters.

A woman exits the Viacom Inc. headquarters in New York April 30, 2013. REUTERS/Lucas Jackson/File Photo

Redstone’s daughter Shari, who controls CBS’s and Viacom’s controlling shareholder National Amusements together with her father, told the New York Times Dealbook conference last month that scale was crucial for both companies, because it would give them greater pricing power in content distribution.

National Amusements, however, does not currently want to sell either company, according to people familiar with the matter who requested anonymity discussing confidential deliberations. The chief executives of CBS and Viacom are also currently not keen on making big acquisitions, because they are focused on executing their operational strategy, these people said.

Nevertheless, the two companies may be forced to consider acquisitions if they come under more competitive pressure, the sources said. They may also turn to partnerships with media companies as an alternative to outright acquisitions, the sources added.

“Should Viacom remain independent, we think it will need a strategic partner to help co-finance a larger and more expensive film slate,” Brean Murray analyst Alan Gould said in a research note on Monday.

CBS, Viacom and National Amusements declined to comment.

Pressure on media companies to consolidate has increased in the last two months, as some industry giants have sought to merge with major distributors of their content, in a bid to expand their reach and profitability.

In October, U.S. telecommunications giant AT&T Inc agreed to acquire media conglomerate Time Warner Inc for $85.4 billion, while last week Rupert Murdoch’s Twenty-First Century Fox Inc reached a preliminary agreement to acquire the 61 percent of Sky Plc it does not already own, valuing the British broadcaster at $23 billion.

Viacom has already been looking at some modest acquisitions. Last month it acquired Argentine broadcaster Telefe for $345 million in cash, and in 2014 it paid $760 million for British broadcaster Channel 5.

Were Bob Bakish, who was named on Monday as the permanent replacement of previous Viacom CEO Philippe Dauman, to explore more acquisitions, he could again look across the Atlantic for opportunities beyond the fiercely competitive U.S. media market, the sources said.

German broadcaster ProSiebenSat 1 and its main rival, RTL Group, would be logical targets, the sources said, as would ITV Plc in Britain and Entertainment One in Canada. However, Viacom’s $12 billion debt pile makes it unlikely it would spend top dollar on acquisitions.

There may be smaller deals for Viacom to pursue, however, that could boost its Paramount movie studio. MGM, which owns a film library and has been exploring its options for some time following its emergence from bankruptcy six years ago, could help boost Paramount’s margins if it was acquired, some media bankers suggested.

None of these companies offered a comment on the possibility of being acquired by Viacom.


Jefferies LLC analyst John Janedis said in a research note that he thinks CBS should focus on buying “TV-centric content related assets, rather than cable networks and film.”

However, CBS CEO Leslie Moonves’ interest may be in buying a movie studio. Sources familiar with the matter said that CBS has approached Sony Pictures in recent weeks, although its owner, Sony Corp, has shown no interest in selling. Sony declined to comment.

Lions Gate Entertainment Corp, which has a movie and television studio, just closed its acquisition of Starz, and could also be an option for CBS, according to one media banker.

AMC Networks Inc, controlled by New York’s Dolan Family, could also have operational synergies with CBS’s cable channel, Showtime. Lions Gate did not respond to requests for comment and AMC declined comment.

To be sure, Moonves publicly has said CBS can do without any major acquisition.

“Will we ever be of a scale of a Disney or an Apple? I doubt it. We are able to play the game just fine as long as we keep doing what we do, which is produce great content for CBS, for Showtime, for whatever the platform is,” Moonves told the UBS Global Media and Communications Conference last week.

An alternative to acquisitions may be partnerships, including between CBS and Viacom. Bakish has already been meeting with heads of Viacom affiliates talking about potential partnerships, one of the people said. Last month, he told Reuters finding ways to partner with affiliates was a priority for the company.

Reporting by Liana B. Baker in San Francisco and Jessica Toonkel in New York; Editing by Greg Roumeliotis, Bernard Orr

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