The Latest CBS-Viacom Drama

The Redstone-fueled drama at

We expect the independent board at Viacom to reject the initial offer since we think that the board and management (along with the Redstone family, the controlling shareholder) believe that the firm is on the path to recovery and the current share price still undervalues the firm’s long-term potential. While we think a deal is slightly more likely than not to occur due to the insistence of Shari Redstone, we believe that CBS is unlikely to pay a large premium and that Moonves might leave if he is not given the right to select his own team. As a result, the Redstone family may decide to give management more time to turn around Viacom thus increasing its share price and possibly earning a premium in a future deal. We are maintaining our narrow moat ratings for both firms along with our fair value estimates of $71 for CBS and $35 for Viacom.

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