Media mogul Shari Redstone has been the catalyst behind the effort to recombine CBS Corp. and Viacom Inc., and she has grown frustrated by CBS' seemingly strident approach to merger talks, according to three people familiar with the situation but not authorized to publicly discuss it.
CBS' recent lowball offer for Viacom, and its desire to dictate who would run the combined company, have caused considerable friction, the people said.
All this matters because Redstone and her family control nearly 80% of the voting stock of both companies through their investment vehicle, National Amusements Inc. Redstone believes Viacom and CBS would be stronger together as they and other traditional media companies face huge challenges adapting their businesses to compete against titans of technology — Alphabet Inc., Facebook Inc., Netflix Inc. and Amazon.com Inc.
Viacom on Wednesday rejected CBS' offer of 0.55 of one of its shares per class B share of Viacom stock, the sources said. Viacom's special committee overseeing the merger talks was planning to make a counteroffer to CBS late Wednesday or Thursday.
"We are not surprised that the offer may have been swiftly rejected by an independent board of Viacom, which is now expected to propose a counteroffer that will likely entail some premium," CFRA media analyst Tuna N. Amobi said in a note to investors.
Beyond price, the sticking point is which executives would be on the senior management team of the combined entity. CBS has stipulated that its chairman and chief executive, Leslie Moonves, would run a merged CBS-Viacom for at least two years and that Moonves' second-in-command, Joseph Ianniello, CBS' chief operating officer, would continue in that role.
Redstone, however, wants Viacom CEO Bob Bakish to have a prominent role in the mix and had hoped the two teams would form a collaborative relationship, according to a person familiar with her thinking.
Viacom and CBS were one until 2006. That's when billionaire patriarch Sumner Redstone — now 94, ailing and largely unable to speak intelligibly — decided he could create more wealth by dividing his empire into two companies.
Shari Redstone tried to recombine the two companies a decade later, but that effort collapsed in late 2016 due to CBS' reluctance to swallow the more challenged Viacom. She then installed Bakish, who previously ran Viacom's international operations, in Viacom's top role.
Viacom owns such brands as Nickelodeon, Comedy Central, MTV, VH1, BET and the anemic Paramount Pictures movie studio in Los Angeles. CBS owns the storied CBS television network, a television production studio, TV stations, the Showtime premium channel and CBS- and Showtime-branded streaming services.
CBS does not view its bid for Viacom as unfairly low.
CBS "believes (and we agree) that they are in a position of strength in the evolving television landscape (at least relatively speaking) due to their lack of basic cable networks giving some freedom to operate outside of the basic bundle and their ownership of high-quality content," Cowen & Co. media analyst Doug Creutz said in a report Wednesday. "Viacom, on the other hand, is operating from a relative position of weakness."
Viacom's networks have struggled in the ratings, its movie studio loses money and its stock fell to about $25 a share as recently as last fall before regaining some ground.
CBS, meanwhile, was trading at more than $60 a share last summer. But the stock tumbled in recent months amid investor unease over television companies that are reliant on advertising. The proposed merger with Viacom also has provided an overhang on CBS' stock. Shares have fallen more than 10% since news leaked that Redstone was gearing up her campaign to recombine the company.
On Wednesday, Viacom shares climbed 3.9% to $30.57. CBS rose 1.8% to $53.79.
Analysts have noted that the talks so far have been unusual.
"Absent a major sweetener by CBS, we think the novelty of such a [lower than market value] bid creates a potential sticking point for Viacom's shareholders, raising the specter of protracted negotiations and/or potential derailment," Amobi said.
CBS' special committee of independent shareholders must weigh Viacom's counteroffer and decide whether to continue the back-and-forth. And if CBS' committee rejects Viacom's offer — which is expected to include keeping Bakish in a senior role — then Redstone must decide how she plans to proceed.
Some analysts have noted that Redstone could install several new board members at CBS who share her views. Redstone serves as vice chairwoman of both companies, but she has not been involved in the special committees overseeing the process.
"We still anticipate some intricate challenges in formulating a governance structure for the combined entity that includes either Viacom's CEO Robert Bakish or CBS' COO Joseph Ianniello as a potential second-in-command to CBS' Les Moonves, who will likely take the helm," Amobi said.