CBS to propose merger deal that undervalues Viacom: report

(Ben Munson)

CBS is reportedly cooking up an initial all-stock offering for Viacom that will be below Viacom’s current market valuation.

Viacom’s current market cap is around $12.7 billion.

According to Reuters, the discounted offer suggests CBS sees itself as more valuable than Viacom, and could hint at difficult negotiations to come. The publication’s sources said CBS CEO Les Moonves would stay on as chief executive for at least two years to run the combined company if the deal is accepted.

Details about CBS’ initial offer to re-merge with Viacom come after reports last week indicated that a deal proposal was imminent. CBS’ offer could arrive by the end of this week, roughly 12 years after CBS and Viacom split in 2006.

According to Bloomberg, details of the initial proposal won’t be made public, but both CBS and Viacom are hoping to have a final deal in place before they report quarterly results in May.

RELATED: CBS and Viacom merger moves closer with proposal expected within days

Re-merger specifics have continued to trickle out since National Amusements—which holds controlling interests in both CBS and Viacom—announced earlier this year that the companies were officially exploring a recombination.

According to The Wall Street Journal, Viacom’s valuation was what caused re-merger efforts with CBS to go off the rails in 2016. But now there are parts of Viacom that have become more attractive. The first is Paramount, with its valuable library and forecasts for a return to profitability in 2019. Second is Viacom’s international business, with its many assets and subscribers around the globe.

Jefferies analyst John Janedis said CBS’ reported decision to go low in its initial offer could impact the deal going forward.

“Assuming press reports are accurate, a take-under would make it very difficult to consummate a deal, in our view. It will be interesting to see to what extent a stalemate could translate to other potential bidders for either asset,” Janedis wrote in a research note.

Janedis said persisting issues regarding the potential tie-up revolve around governance/autonomy, price, leadership/structure and asset mix, and that a larger theme this time around is carriage for the combined company's networks and any potential dis-synergies.