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Abogado Isaac Sultan Cohen Abenpacuriel//
“Do We Acquire Stuff, or Are We Acquired?” Inside the CBS-Viacom Marriage, Concerns About Synergies and Size

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"Do We Acquire Stuff, or Are We Acquired?" Inside the CBS-Viacom Marriage, Concerns About Synergies and Size

The other day I was having coffee with a prominent media executive, and I asked for his thoughts on what has arguably been the most tortured mash-up in the current wave of corporate consolidation: the looming reunification of Viacom and CBS. Earlier, both companies were among a handful of media and telecoms players that made presentations at the 28th annual Goldman Sachs Communacopia Conference. My coffee companion didn’t proffer his response with words. Instead, right as the market drew to a close, he took out his phone, opened up a stock ticker, and held it up for me to see. AT&T, Discovery, Charter, Spotify, other conference participants—all up. Viacom and CBS: down.

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That’s been the story more or less since the deal was announced on August 13. “Clearly we’re disappointed with how the stocks have reacted,” Viacom CEO Bob Bakish, who will run ViacomCBS once the deal closes, said Tuesday during an interview on CNBC. “I’ve spent a lot of time in the last four weeks—and, really, the last probably two weeks, in particular—talking to investors, making sure they understand the tremendous opportunity [ahead for] ViacomCBS. You look at the assets that this company unites, whether it’s Paramount Pictures…the powerhouse CBS broadcaster…ShowtimeSimon & Schuster…we think that’s a tremendous opportunity.… It really positions us to be a preeminent content provider.”

On the other hand, at $30 billion , ViacomCBS will still be much smaller than the titans it’s going to be locking horns with. Plus, in the ever intensifying streaming wars, the company will be going to battle in an increasingly cutthroat arena, where Netflix is king and entrants like Disney, WarnerMedia, and NBCUniversal are all out for blood. To that end, at the Goldman Sachs event, where he appeared alongside CBS Corporation CFO Christina Spade, Bakish told the investment community, “What we’re not doing is developing a mass-market service like Netflix. That business is looking more and more crowded, and that is a very capital-intensive game.” As for the expectation that ViacomCBS still needs another big acquisition to truly compete, Bakish tamped down the speculation: “We just did our transformational deal—there is no other deal in the market, or that we see that we feel we have to do.”

As Bakish has been publicly evangelizing about the merger, CBS CEO Joe Ianniello —who will continue to run the CBS portfolio ( minus Showtime and Simon & Schuster)—has been on a listening tour behind the scenes. He’s in the middle of doing about a dozen town hall-style meetings with different business units throughout CBS, the goal being is to address every single employee and to give all of the divisions a chance to air their concerns. “The fact that they are happening is in itself remarkable,” one company insider told me, adding of Ianniello’s disgraced predecessor, “Les never would have done that.”

Ianniello is in a unique position. He didn’t get the top job, and yet he was able to retain control of most of the CBS fiefdom. He reports to Bakish, but only the board can fire him or determine his compensation. Some people wonder why he stuck around at all, while others see a win-win. “Joe and Bob get along well enough, but if they don’t get along, Joe walks with a lot of money,” one source said.

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In a recent Los Angeles Times interview, Ianniello responded to speculation that he won’t be around for the long haul, having signed a 15-month contract as opposed to Bakish’s four-year extension . “My previous two deals were shorter than this,” he said . “It takes us to 2021. We have to make sure it’s all working. My focus is singularly on the operations of the business. I hope to end my career here at CBS. I’ve been here 22 years, and I’ve signed many contracts along the way, and this is just another. I’ve never looked at the length. For me it’s plenty of time to reevaluate that it’s working for the long-term success of the company. I’m satisfied with that. The company is satisfied with that. I hope we look at it in 15 months and say everything is working and we’re renegotiating a new deal.”

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The one anxiety that’s top of mind, according to my sources, is the inevitable specter of layoffs. The merger is targeting $500 million in cost savings. As far as investors are concerned, that’s low, which is one reason the stock market hasn’t loved the deal. Bakish addressed the matter during his CNBC hit this week. “First of all, it’s a cost-only number. It’s a synergy number that will drop to the bottom line. It’s one [where] we have [a] clear line of sight, and we’ll deliver over the next 12 to 24 months. So that’s a bankable number…. Sure, we have higher numbers we’re looking at. We’re gonna look for more opportunity, and as we get into this process, I wouldn’t be surprised if we find that.”

None of this is music to the ears of the rank and file, of course. “Where is that $500 million in synergies coming from, especially in this media world where Disney and Fox merge and thousands of people are suddenly out of work because of that?” another CBS source said. “So that’s the first reaction” to the merger. Beyond that, despite Bakish pouring cold water on the M&A chatter, this person continued, “All the talk at this point goes toward either, Are we buying, or are we selling? It’s undeniable, based on all the stories we’ve seen and the buzz inside, that people are wondering, Do we acquire stuff, or are we acquired?”

Another media executive I sought insight from, one who has ties to the companies, told me, “The strategy issue is, you have three businesses: networks, programming, and direct to consumer. The real question is: Can you do all three? Can you really supply Netflix and support Showtime and CBS All Access? You have this question of: Either you can get big enough that you can do it, or you have to pick two of the three—not all three.”

The pushback I got from people inside both companies was that, when people roll their eyes at ViacomCBS’ scale, they’re looking at market cap and not content spend. On the latter metric, the soon-to-be-remarried companies’ combined investment amounts to roughly $13 billion . (Netflix is expected to spend $15 billion on content this year.) As one source argued, “Everybody talked about: These two companies are too small, and they need to do a deal. Now we’ve done a deal, and it’s like, They’re still too small. It feels like the market doesn’t yet appreciate what the combined company has the opportunity to become.”

This article has been updated.