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What's next for ViacomCBS post-merger: More M&A

Daniel Roberts

CBS (CBS) and Viacom (VIAB) are finally merging.


The two media giants split back in 2006, and since 2016 Shari Redstone, whose National Amusements is the majority stakeholder of both companies, has pushed to recombine them. The ouster of CBS CEO Les Moonves last year was widely seen as an inciting event to make the merger a reality.

The combined company will be called ViacomCBS, a surprise to some, since CBS is the larger entity and CBS shareholders will own 61% of the company. Viacom shareholders will get an exchange rate of 0.59625 in CBS shares.

Viacom CEO Bob Bakish will be CEO of the combined entity, while CBS CEO Joe Ianniello will oversee all CBS assets within the combined entity.

ViacomCBS will have a market value of around $30 billion—still much smaller than AT&T (T) (which recently swallowed up Time Warner), Disney (DIS) (which recently swallowed up Fox), Netflix (NFLX), and Comcast (CMCSA).

The tie-up is seen as an effort to better compete with those players, many of which have grown bigger through recent M&A.

CBS brings two streaming products to the table: CBS All Access and Showtime, while Viacom earlier this year bought OTT app PlutoTV.

The combination “gives them an optionality to repackage and bundle all of those streaming offerings together,” says CFRA media analyst Tuna Amobi. “While Viacom has been pursuing more of an advertising-oriented strategy in streaming, CBS has been more subscription-based with All Access and Showtime. So I think bringing those two together will help them to diversify.”

After the potential combination of those streaming platforms will come inevitable strategic cost-cutting—the company says it is targeting $500 million in savings, although UBS had pegged the savings potential at $1 billion.

After the cost-cutting, what’s next for ViacomCBS?

More buying, potentially.

Robert Bakish, President and CEO, Viacom Inc., participates in a panel discussion during the annual Milken Institute Global Conference at The Beverly Hilton Hotel on April 29, 2019 in Beverly Hills, California. (Michael Kovac/Getty Images)

The most popular target analysts are already naming is Sony Pictures, which would help ViacomCBS could compete in film. The studio had $8.8 billion in revenue in its most recent fiscal year. Activists have already pushed for Sony to split into two businesses: electronics and entertainment. ViacomCBS will have a huge portfolio of television content, but will look lacking in movie assets.

Another potential target is Lionsgate Entertainment, the movie studio that had $3.68 billion in revenue for its fiscal 2019. Lionsgate owns Starz (acquired in 2016 for $4.4 billion), which could make sense at ViacomCBS alongside Showtime. And CBS already tried to buy Starz earlier this year.

Finally, there’s Discovery, which bought Scripps Networks two years ago and has a market cap of $15.1 billion. It would be expensive for ViacomCBS, but would bring Travel Channel, Food Network, and more under the umbrella.

“I would look to them to be a potential buyer,” says Amobi. “Lionsgate, Sony, some have also mentioned Discovery... I think this is the first step in what I expect to be an active play. That being said, I also wouldn’t discount the possibility that if the right price comes along, they could be a seller as well.”

So there’s a lot that ViacomCBS could buy next—or it could be bought.

Daniel Roberts is a senior writer and show host at Yahoo Finance, and closely covers streaming media. Follow him on Twitter at @readDanwrite.

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