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CBS expected to make low-ball bid for Viacom

April 4, 2018

The proposed marriage between CBS Corp. and Viacom Inc. may be off to a rocky start as CBS prepares a low-ball bid to buy cable television programmer Viacom.

CBS’ proposed all-stock offer — which could come in the next few days — is expected to put a lower valuation on Viacom than its current market capitalization, according to a person familiar with the process but not authorized to discuss it.

In addition, the CBS offer is expected to stipulate that its chairman and chief executive, Leslie Moonves, would run the combined company for at least two years, the knowledgeable person said. Moonves’ contract with CBS goes through mid-2021.

Viacom’s current market capitalization is about $13 billion. Its shares have been hovering around $30. CBS’ market value is $19.4 billion.

It is unusual for a company to make an offer to buy another company without paying a healthy premium. A second person familiar with the process concluded that CBS’ planned low-ball offer would probably be “a starting point” for the negotiations.

The process is complicated because both entities are controlled by the Sumner Redstone family, and both companies face challenges as traditional television channels lose viewers in a changing media environment.

Both companies announced in February they had formed special committees to evaluate whether a consolidation of the two media companies would benefit shareholders.

CBS and Viacom were one entity until Redstone in 2006 divided his empire into two companies in a bid to generate more wealth. But now, both companies face steep challenges as consumers migrate to streaming services and other entertainment platforms.

In recent years, Viacom has struggled with ratings challenges at key networks and box-office flops at Paramount Pictures, while CBS has been able to boost its value on the strength of its programming.

Redstone’s daughter, Shari Redstone, tried unsuccessfully to combine the companies in 2016. At that time, CBS’ board resisted reunification out of concern that Viacom’s problems would weigh on CBS. The 2016 merger talks fell apart regarding issues of control and a proposed valuation of Viacom, according to people familiar with the situation but who were not authorized to speak publicly.

But Viacom has since improved its operations and devised a new business plan. Viacom owns MTV, VH1, BET, Comedy Central, Nickelodeon and the Paramount Pictures movie studio in Los Angeles.

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