Though Viacom Inc. and CBS Corp. executives are bullish about the scale their recombined company ViacomCBS will have in the media marketplace, some investors and analysts have governance concerns related to the recently announced merger.
Mario Gabelli, the chairman and CEO of GAMCO Investors Inc., whose fund is the largest outside holder of Viacom voting shares, for instance, is still contemplating options against the deal, but no action is imminent.
Gabelli believes GAMCO's holdings are being valued below market under the merger agreement. In an interview, Gabelli said the company is awaiting documents that will detail the background on how the ViacomCBS deal was constructed and whether it was done at arm's length.
Under the all-stock stock deal announced Aug. 13, National Amusements Inc., led by Shari Redstone, will control 79.4% of the voting stock of the recombined company, which was split in 2006, and 10.1% of its fully diluted shares. Redstone, president of National Amusements and vice-chair of both CBS and Viacom, will chair the merged entity. National Amusements currently holds approximately 78.9% and 79.8% of the class A voting shares of CBS and Viacom, respectively.
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Gabelli said CBS shareholders did very well with the deal, but that is not necessarily the case for Viacom voting shareholders. "We're looking for a bit of juice," Gabelli said, noting that GAMCO is the top Viacom voting stock shareholder outside of National Amusements.
Asked if GAMCO is preparing for a valuation challenge, Gabelli replied: "We don’t have all the details as to what happened. We're a long way from that."
Under the announced deal, each Viacom class A voting share and Viacom class B nonvoting share will convert into 0.59625 of a class A voting share and class B nonvoting share of CBS, respectively. When the deal closes, CBS shareholders will own approximately 61% of ViacomCBS, and Viacom shareholders the balance.
Charles Elson, the chair in corporate governance and the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said in an interview that it would be tough for any group challenging National Amusements and Redstone.
"Nothing has really changed," he said. "It’s their ball."
Elson added National Amusements' control is in effect "an anti-takeover poison pill," which is "the danger of the structure."
Naveen Sarma, a media analyst at S&P Global Ratings, said it remains unclear if ViacomCBS plans to get larger or if the company itself will become an acquisition target. But the analyst acknowledged that National Amusements and Redstone could prevent the latter from materializing.
On a conference call discussing the deal, executives from both companies maintained that the combined entity would continue to be open to acquisitions of any kind that will add value, also highlighting their improved financial position in terms of cash flow generation and balance sheet post-merger.
"One of the ... big things this deal does is take a big uncertainty off the company, which was an overhang," said Viacom CEO Bob Bakish, who will also lead the combined company as CEO. "We will be very well positioned to exploit those opportunities."


