The CBS-Viacom Merger
The media industry in the United States has once again witnessed a mega-merger. CBS and Viacom have decided to merge and create a combined entity. At the present moment, CBS has a market capitalization of $18 billion whereas Viacom has a market capitalization of $12 billion. The combined entity is therefore expected to have a valuation of close to $30 billion.
Both CBS and Viacom were initially the same company. However, in 2006, the companies decided to demerge. However, both companies were still controlled by the Redstone family. Sharie Redstone, daughter of famous billionaire, Sumner Redstone is the chairwoman of both these companies.
It is surprising that the merger took so long despite the fact that both companies are headed by the very same person. The shareholders of both companies were not on the same page regarding the valuation at which the merger should take place. Finally, it has been decided that the CBS-Viacom merger is to be all-stock deal wherein six shares of CBS will be exchanged for ten shares of Viacom.
The CBS Viacom merger has become the subject of a lot of discussions. There are many opinions regarding the usefulness of this merger for both the companies as well as the general population. In this article, we will have a closer look at these different opinions.
The Urge to Merge
CBS and Viacom have been operating as individual companies for over a decade now. However, given the competitive market scenarios, the companies have now decided to merge together. This is because both companies find themselves to be too small to compete with their peers. As mentioned above, Viacom and CBS have a valuation of $12 billion and $18 billion, respectively.
On the other hand, Netflix has a market capitalization of $131 billion! Time Warner and AT&T have also recently merged together. Their combined valuation is over $250 billion. Disneys acquisition of Fox studios has also created a $240 billion behemoth. The Verizon–AOL combine is also worth more than $200 billion.
The bottom line is that both CBS and Viacom needed to merge together if they were to stand any chance of fighting with the top guns in the industry who, as mentioned above, have very deep pockets. Unsurprisingly, CBS and Viacom have decided to unify their operations.
$500 Million per annum Savings
The management at both companies has cited numerous reasons for this merger. However, one of the most cited reasons is that it will result in significant savings as a result of increased synergy. It has been stated that as many as $500 million per annum will be saved as a result of this merger. This has got many people concerned. When companies use the words synergy and savings after a merger, they are usually referring to layoffs.
Hence, if $500 million will be saved per annum, then the CBS Viacom combine must have thought of large scale layoffs. The company has neither accepted nor denied this allegation. Hence, there are widespread rumors that layoffs may be in the works. This has prompted some statements by politicians. For instance, Senator Elizabeth Warren has claimed that she is very concerned about the future of the employees and customers of the CBS-Viacom combine.
Below the surface, CBS and Viacom are very different companies. CBS is a traditional TV network which derives most of its ad sales from big brands. On the other hand, Viacom is a company which relies more on social media and influencer marketing. Bundling these two different cultures into a cohesive company will be extremely difficult.
Better Content: Both CBS and Viacom hold the intellectual property for some great content. However, the problem is that they are now competing with video libraries like Netflix, which offer a lot of choice to their customers. The combination of CBS and Viacoms content may provide it with a fighting chance to withstand the onslaught from the competition.
For instance, CBS right now holds the contract to broadcast the NFL in the United States. This is the biggest sporting event in the United States. As a result, CBS has signed a very expensive contract to bag the rights to broadcast it. At the moment, CBS pays a massive $1 billion per annum for the privilege. This contract is up for renegotiation in 2022. It is likely that a lot more competitors will bid for the rights to broadcast NFL. CBS alone might not have the deep pockets to compete unless it brings Viacom on board as well.
The bottom line is that the combined entity can create better content at a better price for their customers. Also, Elizabeth Warrens fears that the prices will rise are unfounded, given the fact that competitive pressures in the media industry will not allow any such thing to happen.
Positioning to Sell: There are many analysts who are of the opinion that the CBS-Viacom merger is actually an intermediate step in the bid to sell off both the companies. The reality is that both companies are weak by themselves. Combined, they would represent a formidable force which many of its deep-pocketed competitors might want to acquire. This could be the case since deep-pocketed companies like Apple and Amazon are looking to make significant headway into the media business.
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