What About Bob? Behind the Leadership Drama Holding Up a Viacom-CBS Deal -- Update

By Keach Hagey and Joe Flint 

When CBS Corp. Chief Executive Leslie Moonves, Viacom Inc. Chief Executive Bob Bakish and their top lieutenants met in January over deli sandwiches at CBS's Los Angeles offices to discuss merging their companies, things started out cordially.

The two sides agreed on the strategic merits of a tie-up, according to people familiar with the matter. But as the meal wore on, it became clear that the fate of the deal would turn on one question: What about Bob? That is, would Mr. Moonves accept Mr. Bakish as his No. 2 and likely successor in a combined company?

Three months on, that remains the key impasse. People close to both Viacom and Shari Redstone, the president of National Amusements, the holding company that overwhelmingly controls both companies, say there is little chance of a deal without a senior role for Mr. Bakish.

People familiar with CBS's thinking are adamant he will have none. Mr. Moonves is insisting that his longtime right-hand-man, CBS Chief Operating Officer Joe Ianniello, be his No. 2. CBS also worries that Mr. Bakish could be a proxy for Ms. Redstone to influence the media assets her family controls, the people say.

Ms. Redstone handpicked Mr. Bakish, 54 years old, to run Viacom after leading a power struggle that ousted his predecessor, and they remain close, people familiar with their relationship say.

Mr. Moonves, 68, who was installed by Ms. Redstone's father, Sumner Redstone, is regarded as one of the savviest operators in the media industry. But Ms. Redstone wants a clear successor for him and doesn't believe that Mr. Ianniello, who has never led a public company, fits the bill, according to people familiar with her thinking. Mr. Bakish has run Viacom for a little over a year.

Ms. Redstone has begun to apply pressure on Mr. Moonves. She has been interviewing potential new CBS board members, which would make it easier for her to overhaul that board and oust Mr. Moonves, according to people familiar with the matter. National Amusements has nearly 80% voting stakes in both Viacom and CBS.

"It's almost going activist on a company you control," said one person familiar with Ms. Redstone's thinking.

CBS recently said it was replacing board member Arnold Kopelson, a movie producer, with former Time Warner Chief Executive Richard Parsons . Mr. Parsons is expected to help Ms. Redstone and CBS find additional CBS board members, according to people familiar with the matter.

In an April 11 statement, National Amusements underscored its "tremendous respect" for Mr. Moonves and expectation that he would lead a combined company.

Forcing a marriage between Viacom and CBS isn't without risk for Ms. Redstone and the value of her holdings. Since Jan. 11, the last day before reports of renewed merger talks first surfaced, CBS's market capitalization went from $26.9 billion to $19 billion, and Viacom's has gone from $14.6 billion to $12.7 billion. That has made finding a price that's acceptable to both sets of shareholders all the more difficult.

Investors will be seeking an update on the talks when Viacom reports earnings on Wednesday.

The roots of the standoff date back to early this year, when Ms. Redstone and Mr. Moonves sat down over a friendly meal in Los Angeles to renew discussions about a Viacom-CBS merger, after a failed attempt in 2016.

Ms. Redstone asked Mr. Moonves to find a position senior enough to ensure Mr. Bakish would remain with the combined company. When Mr. Moonves suggested Mr. Bakish could lead the international or cable division of the merged company, Ms. Redstone pushed back, according to people familiar with the matter.

Mr. Moonves neither agreed nor disagreed with Ms. Redstone's proposal. She left believing they were on the same page, according to people familiar with the matter.

During the chief executives' meal together, Mr. Bakish was determined to avoid the topic of management, but Mr. Moonves persuaded him and he relented.

"You can be CEO, and I can be president," Mr. Bakish said to Mr. Moonves, according to people familiar with the meeting.

Leaning in toward Mr. Ianniello, who also was present, Mr. Bakish added: "You might have a problem with that." Without missing a beat, Mr. Ianniello replied, "You think?"

Over cookies and snacks in late March, Mr. Bakish and Viacom Chief Financial Officer Wade Davis pitched CBS board members on their vision for wringing $1 billion in synergies out of the merger. The CBS directors later told their Viacom counterparts that they were impressed by Mr. Bakish's presentation, according to people close to Viacom.

So Viacom's camp and Ms. Redstone were shocked when CBS made an initial offer on April 3 that carved out no role for Mr. Bakish, according to people familiar with the matter. Viacom immediately countered with a proposal that would name Mr. Bakish as Mr. Moonves's No. 2 and give him broad responsibilities.

Under the Viacom proposal, Mr. Moonves would be in charge of most of the current CBS assets as well as Viacom's Paramount studio, while Mr. Bakish would be in charge of CBS's local stations and the rest of Viacom's assets, as well as key functions like ad sales, digital and international, according to people familiar with the Viacom proposal.

That's a nonstarter for Mr. Moonves, according to people familiar with the matter, as well as Mr. Ianniello, who has a provision in his contract that says he can walk away with a $70 million payday if he isn't named Mr. Moonves's successor.

(END) Dow Jones Newswires

April 24, 2018 19:00 ET (23:00 GMT)

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