Viacom wants CBS to increase its merger bid

The CBS – Viacom merger drama has intensified turning the industry into binge-watchers who are eagerly waiting for the next episode to unfold. In the latest take, Viacom (VIAB) has demanded that CBS Corp (CBS) raise its initial merger bid.

After Shari Redstone revived her interest to recombine both Viacom and CBS, there had been tension brewing within the Redstone empire. Following which, both the companies created special committees to look at the possibilities of the merger.

The first bid made by CBS for Viacom under Les Moonves leadership was way below the company’s market value. The price for the all-stock bid was not communicated by CBS. However, Viacom including its shareholders from the start has always demanded a market premium, as it sees cost synergies of at least $1 billion in this collaboration.

Latest news according to CNBC says that the offer price proposed by CBS failed to attract Viacom. The owner of MTV Networks is in no mood to accept lower premia and has asked CBS increase its merger proposal offer by about $2.8 billion or almost a quarter more than the initial offer. This shows the wide gap existing in the price expectations of both the media firms.

Viacom including its shareholders from the start has always demanded a market premium, as it sees cost synergies of at least $1 billion in this collaboration.

According to the latest price proposed by Viacom, CBS will have to offer 0.68 CBS shares for each Viacom share, higher than CBS’s initial offer of 0.55 of its shares for each Viacom share. The new counterproposal by Viacom will give its shareholders a 41.5% stake.

Initially it was rumored that Viacom shareholders were more likely to end up with 0.62 CBS shares per Viacom share.

Apart from the offer price, another factor that appears to be an obstacle in this reunion is – leadership. Shari had said she wants to have executives from both the companies to control the merged entity and will not approve of a deal that will undermine Viacom CEO, who was instrumental in boosting Viacom’s performance and also improving relations with cable and satellite.  CBS in its initial offer placed Viacom’s CEO Robert Bakish at No. 3 position after CEO Moonves and CBS COO Joseph Ianniello at No. 2 position.

But in its letter to CBS, Viacom stressed that it wants to see Bakish as the President and Chief Operating Officer of the merged entities.

The new counterproposal by Viacom will give its shareholders a 41.5% stake.

If Viacom wants to survive in the rapidly changing media industry, it should consider recombining with CBS. With a boom in internet TV industry and major companies like Netflix (NFLX), Amazon (AMZN), Google and Roku (ROKU) snatching a major chunk of market share, the traditional media houses are left scrambling. And the only way they can bounce back in the game is by getting bigger.

The pressure has intensified after AT&T’s planned $85.4 billion acquisition of Time Warner and Walt Disney’s recent proposal to purchase assets of Twenty-First Century Fox’s for $52.4 billion.