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CBS to Merge With Viacom in Long-Awaited $11.7 Billion Deal

Lucas Shaw and Nabila Ahmed

(Bloomberg) -- CBS Corp. agreed to merge with Viacom Inc. in an $11.7 billion transaction, capping years of on-again-off-again attempts to reunite two media giants that split in 2006.

The all-stock deal, announced Tuesday, combines the most-watched U.S. broadcast network with the parent of Paramount Pictures and cable channels such as MTV and Nickelodeon. It followed marathon negotiation sessions this week as the two sides hashed out a price for the long-awaited merger.

Shari Redstone, whose family controls both companies, will become chair of the combined entity, called ViacomCBS Inc. She’ll preside over the media empire originally assembled by her father, TV and movie magnate Sumner Redstone, who is now 96 and ailing.

Viacom Chief Executive Officer Bob Bakish will lead the new business as CEO.

“It creates a true powerhouse in media,” Bakish said in an interview. “One of the few companies that can shape the future of the business.”

Joe Ianniello, currently acting head of CBS, will oversee the CBS side of the business. He took the helm last year after sexual-misconduct allegations toppled longtime CEO Les Moonves. Ianniello has signed a new contract that runs into 2021, according to a Viacom representative.

Ianniello is a “tremendously talented executive,” Bakish said. “He has had a real and positive impact at CBS, including the recent period where he was put into place at a tricky time.”

With the media industry consolidating ever further into a handful of giant companies, the transaction could give the combined entity much greater clout in negotiating deals with pay-TV distributors. It also could help them spread out the cost of content purchases like sports rights over larger operation.

Bakish’s Pitch

Negotiations picked up steam in April, when CBS suspended its search for a new CEO and extended Ianniello’s contract as interim chief. Advisers, bankers and board members met to discuss the potential framework of a deal.

In July, shortly after the Independence Day holiday, a subset of CBS board members invited Bakish to dinner at the 21 Club, a speakeasy in midtown Manhattan, to discuss his views on Viacom, CBS and a potential merger. They then invited Bakish to present his strategy to the full CBS board.

Under the agreement that was ultimately hammered out, management expects to generate $500 million a year in cost savings within a year or two of the deal closing. The combined entity, valued at about $30 billion, will have more than $28 billion in sales.

ViacomCBS will reduce costs by shedding real estate and cutting jobs, Bakish said.

“But at the same time, this will create a company that truly matters,” he said.

Stock Deal

CBS shareholders will get 61% of the combined company, with the remainder going to Viacom investors. Each Viacom share will convert into 0.59625 of a CBS share. The new business also will pay a “modest” dividend.

CBS stock climbed 1.4% to $48.70 on Tuesday, with Class B shares of Viacom rising 2.4% to $29.21.

CBS will receive six seats on the 13-member board, while Viacom gets four. Another two will go to National Amusements Inc., the Redstone family’s investment company, which has said it will vote its controlling stake in favor of the deal.

The last time the companies were in merger discussions, more than a year ago, Viacom directors had agreed to take 0.6135 of a CBS share for every nonvoting share of their business, people with knowledge said at the time. The companies, using the code names “Comet” and “Venus,” had expected to save at least $1 billion by combining. But Viacom went through its own cost cutting in the interim.

CBS shares, meanwhile, have dropped. They’ve lost about 18% since the beginning of 2018, as the broadcaster faced mounting challenges, including the ongoing competition for viewers with the likes of Netflix Inc. and the ouster of Moonves.

This time around, the negotiations dragged on several days as the two sides worked out the details. The companies held round-the-clock negotiating sessions this week, according to people familiar with the talks.

Previous Talks

CBS and Viacom, both based in New York, were one entity until 2006, when the Redstone family decided investors would give them greater value as separate companies. That strategy didn’t work as well as expected, and there have been sporadic efforts to recombine them in recent years.

CBS had been weighing its next moves since firing Moonves last September, after a dozen women accused him of sexual misconduct, setting off a shake-up that included a board overhaul. Ianniello, formerly chief operating officer, has been running the company as interim CEO ever since.

CBS and Viacom have ties that go back to the 1970s. The latter was spun out of CBS in 1971, after the Federal Communications Commission ruled that TV networks couldn’t sell programs into syndication after the shows had completed their original run.

Viacom became the vehicle that marketed reruns of “I Love Lucy” and “Gunsmoke,” and attracted the interest of Sumner Redstone as an investment. He acquired control of the company in 1987 and purchased CBS in 1999.

Viacom is likely to look for more deals in the near future, Bakish said. The combined company will have robust cash flow and investment grade debt, enabling it to invest more money into programming and pursue deals.

Viacom and CBS have been seen as possible deal partners for Lions Gate Entertainment Corp. and Discovery Inc. in recent years, though Bakish said there were no current conversations worth discussing.

(Updates shares in 15th paragraph.)

--With assistance from Jeff Green, Gerry Smith, Christopher Palmeri and Ed Hammond.

To contact the reporters on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net;Nabila Ahmed in New York at nahmed54@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Crayton Harrison at tharrison5@bloomberg.net, Nick Turner

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