Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Well, if they hadn't already, Viacom Inc. shareholders finally get all those memes about 2016 being a lousy year. The television network owner was going to sell off its Paramount Pictures movie studio, then it wasn't. It was going to merge with CBS Corp., now it's not. 

Whiplash
Hope for a merger with CBS had been propping up Viacom's stock, but deal talks have ended
Source: Bloomberg

Shari Redstone, the daughter of elderly media mogul Sumner Redstone, was the driving force behind the potential CBS-Viacom tie-up but has suddenly changed her mind -- and that pretty much shuts the door on any deal. The Redstones control both companies through voting stock, while Shari is also vice chairman of both boards. In a letter Monday, she and her 93-year-old bedridden dad said they've been impressed with Viacom's new strategy under interim CEO Bob Bakish and that the duo now prefers to see the companies remain separate.

While Viacom shares are sinking lower, the change of plans is good news for CBS Chief Les Moonves, who certainly wasn't thrilled about the prospect of having to run Viacom's challenged networks. He's used to managing a healthy business and focusing on how CBS maintains its lead. As I've written before, even though Viacom's MTV, VH1 and Comedy Central all should have had a unique edge in capturing millennial viewers, they've floundered. And despite the Redstone's upbeat tone in their letter, Viacom's revenue plunged 15 percent in its most recent quarter.

Headed for a Debt Downgrade?
The yield on Viacom's bonds surged Monday following news that the company won't be merging with CBS, leaving it to work on a turnaround on its own
Source: Bloomberg

Monday's news will be interpreted as a win for Moonves, who was said to only be willing to go along with the deal if he could get control over the Redstone family's voting shares. Nice try, Les. But it also means things could get really interesting for CBS. 

In the time since Shari Redstone shook things up and recommended a deal, there has been meaningful M&A movement in the industry. AT&T Inc. is seeking approval to buy Time Warner Inc., the owner of CNN, TBS and HBO, for $108.7 billion. Even as media executives such as Moonves play cool about it, the megamerger has members of government -- ostensibly including President-elect Donald Trump -- up in arms.  Also, Rupert Murdoch's 21st Century Fox Inc., which bid for Time Warner a couple years ago, is now seeking to take full control of the U.K.'s Sky Plc, and Comcast Corp., which owns NBCUniversal, is plotting its expansion into the wireless phone market. 

Media on the Move
A decade ago, industry deals centered on publishing companies. Then media M&A surged again in 2014-2015 as pay-TV providers consolidated. Has AT&T kicked off another wave, this time for content?
Source: Bloomberg

CBS has had wandering eyes, too. It was said to have been in the bidding for Starz, which recently sold to Lions Gate Entertainment Corp. CBS has also long been seen as a prospective buyer for AMC Networks Inc., whose stock has taken a bath this year as it became apparent just how reliant the media company is on the aging "Walking Dead" series. 

But think bigger: How about CBS and ESPN getting together? I've been writing this year about how Walt Disney Co. may be increasingly inclined to spin off or sell its struggling yet ultra-valuable ESPN network, and the idea has been catching on. CBS, which airs "Thursday Night Football" and recently obtained rights to carry NFL games on its CBS All Access streaming service, could look to double down by opportunistically seizing a deal for ESPN.

Let's even take it a bit further: As media dealmaker extraordinaire John Malone recently suggested, a cleaner Disney (sans ESPN) could become a target for Apple Inc. (I would add Verizon Communications Inc. or Charter Communications Inc. to the list of potential media buyers). The same can be said for CBS. It could attract a tech giant like Apple or a telecom company -- and for all we know, this may be more than hypothetical, which would be a possible explanation for why the Redstones unexpectedly ditched the Viacom merger plan.

Also, structuring a deal between CBS and Viacom that would please both sides seemed insurmountable. Why should CBS pay a premium for a company doing worse than itself to gain assets that it doesn't need?

Bookends
CBS is among the most highly valued entertainment-media stocks, while its former other half, Viacom, is the cheapest
Source: Bloomberg

It's tough to see how any of this is good news for Viacom, however. The company isn't likely to draw other suitors for the time being, and so Bakish will need to make the long-awaited turnaround happen -- and fast, as we know Shari Redstone won't hesitate to replace an ineffective CEO. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Bloomberg News reports that Bakish will be named Viacom's permanent leader, filling a vacancy left by Philippe Dauman, a one-time friend of Sumner's who was pushed out following the bitter battle with Shari earlier this year.

  2. Although, investors as well as Bloomberg's Alex Sherman and I think the AT&T-Time Warner merger will get done

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net