Breakingviews - CBS-Viacom merger is more whimper than Big Bang

The CBS Television Studios campus is seen in Los Angeles, California, U.S. August 3, 2018. REUTERS/Lucy Nicholson

NEW YORK (Reuters Breakingviews) - CBS and Viacom, both controlled by the Redstone family, have agreed to a $30 billion reunion. Rogue chief executives, supine boards and dumb disputes gummed up the process. Hefty cost savings won’t make up for the billions in lost value after three years of limbo.

Putting the U.S. broadcaster and the MTV operator back together after 13 years has not been easy, despite their common controlling shareholder. But on Tuesday the two companies, to be called ViacomCBS, agreed to a stock swap. Existing CBS shareholders will own 61%, with Viacom investors owning the rest. Shari Redstone, the daughter of nonagenarian Sumner, will assume the chair of the board and Bob Bakish, Viacom’s current leader, will run the new media firm.

The reunification has been in the works since 2016 but former bosses Philippe Dauman at Viacom and Les Moonves at CBS resisted and contrived to destroy value. Clearing them out and refreshing the boards was necessary, but took away from what should have been inevitable.

Take the S&P 500 Media and Entertainment benchmark. It’s up roughly 20% since mid-August 2016. Three years ago, the combined market capitalizations of CBS and Viacom added up to over $40 billion. Had their values increased in line with the sector, the two companies would together now be worth well over $45 billion. They’re actually valued at only two-thirds of that.

The combo is touting $500 million in annual savings. Once taxed and capitalized on a multiple of 10, that equates to about $4 billion in present value. That should be good for shareholders in both companies, but it recoups less than a third of the missing $15 billion or so of value. That shortfall would be greater if more focused versions of CBS and Viacom had performed in line with Walt Disney or the smaller Discovery, whose valuations have outperformed the sector.

Such is the cost of CEO egos and dithering. Bakish will have to convince investors the tie-up, home to Paramount Pictures, Stephen Colbert, NFL football games, and SpongeBob, deserves a better status among his peers. For now, the long-awaited merger is more of a whimper than the Big Bang.


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