Viacom Inc. stock dropped nearly 5% on Monday amid concerns among investors that they might be short-changed in the much anticipated merger with CBS Corp.
The New York-based companies are in the final stages of reaching a merger agreement. Board members representing two firms, both controlled by the Sumner Redstone family, worked through the weekend and on Monday to try to nail down final details — but they still had not reached agreement on a price, according to a person familiar with the situation who was not authorized to comment.
CBS is the larger of the two companies, and will acquire the smaller Viacom Inc., whose assets include MTV, Comedy Central, Nickelodeon, BET and the Paramount Pictures movie studio in Hollywood. Nonetheless, the new company is expected to be named Viacom, in a nod to the legacy of ailing mogul Sumner Redstone, who acquired Viacom in 1987 and built it into an entertainment leader.
Because the deal will be an all-stock transaction, investors have been watching closely for any details on the exchange ratio that values the two stocks. (The exchange ratio is the relative number of new shares that will be given to existing shareholders of a company that has been acquired or that has merged with another.)
The Wall Street Journal reported Monday that CBS would get a “small premium for its shares,” and that the exchange ratio being discussed was from 0.59 to 0.60. That prompted Viacom’s stock to fall $1.48 to $28.53 on Monday.
Viacom’s market value is currently $11.7 billion. That is close to what CBS is expected to pay for the company.
CBS shares, which had declined about 4% on Friday, slipped another 2% on Monday to $47.91 a share. CBS’ market value is $18 billion.
Viacom Chief Executive Bob Bakish is expected to become chief executive of the merged company and gain a seat on the board. Shari Redstone, the mogul’s daughter, will become the first chairwoman in the history of Viacom.
The proposed merger of the two New York-based companies is the latest in a wave of entertainment industry consolidations and was widely expected. It was the third time in three years that CBS and Viacom attempted to hook up.
CBS was part of Viacom until Redstone, now 96, tore his empire into two pieces in 2006.
Meanwhile, Viacom last week extended the tenure of Paramount’s chairman and chief executive, Jim Gianopulos, who was brought in to run the moribund studio in 2017. In the last year, Paramount has displayed flickers of a turn-around after years of box office duds and hundreds of millions of dollars in financial losses. Gianopulos signed a new multi-year employment agreement, according to a person close to the company who was not authorized to discuss personnel matters.
But last week, Bakish gave the studio a shout-out during a call with analysts.
“We are thrilled with what’s going on at Paramount, which just delivered its 10th straight quarter of year-over-year adjusted operating income improvement and is on track for full-year profitability in 2019,” Bakish said.