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Analysts: CBS likely to see more departures after Moonves, future M&A uncertain

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Analysts: CBS likely to see more departures after Moonves, future M&A uncertain

Some battles are over for CBS Corp., but the sudden departure of its longtime leader is likely to create further executive shake-ups.

In the wake of the resignation of Chairman, President and CEO Les Moonves, who remains under investigation for alleged sexual misconduct, Wall Street analysts are sizing up his immediate successor, as well as the ramifications for other members of upper management, potential suitors for the programming company and the possibility of a recombination with former corporate sibling Viacom Inc.

Stepping into the leadership void is Joe Ianniello, COO since June 2013, who will serve as president and acting CEO during the search for Moonves' permanent replacement. Ianniello has a history of strong leadership at CBS, but analysts say his close ties to Moonves could prove a liability.

KeyBanc Capital Markets analyst Andy Hargreaves in a note wrote that while Ianniello should be given the opportunity, his connection to Moonves makes him "an unlikely replacement," especially given the nature of Moonves' departure.

BTIG analyst Rich Greenfield compared Ianniello's position to that of former acting Viacom CEO Tom Dooley, who lasted only 90 days in the role after the departure of former Viacom CEO Philippe Dauman.

Should Ianniello exit, the departure would be timed to the appointment of a new permanent CBS CEO, who will likely come from outside CBS' current executive suite, Greenfield predicted.

David Miller, an analyst at Imperial Capital, said in an interview that the role should be Ianniello's "job to lose." In addition to his financial acumen, the analyst said Ianniello has a strong sense for the creative process, an attribute his former boss used to help make CBS the most-watched network during 15 of the past 16 TV seasons.

"He knows how to read a script, which actors fit a part, and who should direct," Miller said.

Some analysts also expect other key executives to depart in the months ahead.

Hargreaves said his company believes several CBS executives have close relationships with Moonves, including JoAnn Ross, president and chief advertising revenue officer, CBS Entertainment President Kelly Kahl and CBS TV Studios President David Stapf. "We believe Mr. Moonves' departure increases the risk that other executives leave in his wake," he wrote. "This could create operational disruption at a time that we believe is critical to both establish and execute a strategy to transition CBS to succeed in the next generation of video entertainment."

As to potential deals in the wake of majority shareholder National Amusements Inc.'s agreement to stop pushing for a Viacom recombination, most of the analysts suggested that a spate of recent M&A activity and extant regulatory rules could mean CBS missed its window of opportunity.

"Unless the [Federal Communications Commission] changes its rule about foreign ownership or [that] you can't own two broadcast [networks], you have to rule out Comcast, Disney and New Fox," Miller said.

He also downplayed interest from tech companies. "Why would they look to buy CBS, when it is increasing series production and the content is available through licensing deals?"

Morningstar analyst Neil Macker suggested that Verizon Communications Inc. would make the most sense as a buyer for CBS. However, he doesn't think new leadership at the telco has interest in linear video operations, and the company is presently concentrating on its 5G rollout.

In the absence of outside interest, a CBS recombination with Viacom — the two companies split in 2006 — still might ultimately occur, even though National Amusements, which owns nearly 80% of the voting stock in both companies, said Sept. 9 that it would not pursue a merger course for two years. The Viacom agreement came as part of a settlement between CBS and National Amusements, which also included a reshaping of the CBS board of directors.

"While National Amusements cannot propose a transaction between CBS and Viacom, we believe they would support such a transaction if the independent boards of both companies agreed to terms," Greenfield wrote. "We continue to believe a merger between Viacom and CBS offers substantial value creation in terms of revenue synergies, cost-savings and balance sheet strength; we believe the independent directors will agree."

Macker doesn't anticipate a Viacom deal in the near term. "It would look sketchy given the earlier actions," he said, referring to repeated efforts by Shari Redstone, the president of National Amusements and vice chair of both CBS and Viacom, to push for a reunion of the two companies.

Instead, Macker believes CEO Bob Bakish will get more time to "reset Viacom. Two years from now, Viacom may be a much stronger company and it might make more sense for them to reunite." Redstone had advocated for Bakish to have a significant leadership role at the merged entity, before backing off that position.

Imperial Capital's Miller doesn't believe the companies should merge. "On the surface, a deal appears very complementary," he said. "But we don't feel the companies mesh well in terms of technology, systems, work flows and culture."