By Joe Flint
Leslie Moonves, who isn't used to standing around, found himself
doing just that at this summer's Allen & Co.'s annual summer
gathering of business titans in Sun Valley, Idaho.
While others headed off to the opening night's barbecue, the CBS
Corp. chairman and chief executive stood under the inn's
porte-cochere waiting for the woman who now holds great sway over
his fate, Shari Redstone, the daughter of media mogul Sumner
Redstone. When she emerged, Mr. Moonves squired her to dinner in a
rented Buick.
The relationship between the two -- the flashy TV executive and
the behind-the-scenes family brawler -- holds the key to whether
Ms. Redstone can pull off what would be a dramatic finale to a year
of corporate drama, by putting back together CBS and Viacom Inc.,
the two companies her father split apart a decade ago.
Ms. Redstone, who now essentially controls the $40 billion media
empire, would like them to consider a merger, and Mr. Moonves's
support is crucial. He is widely regarded on Wall Street as having
turned CBS from a TV laggard into a profitable engine. Now Ms.
Redstone would like him to work his magic on Viacom, the struggling
parent of Paramount Pictures and underperforming cable networks
including MTV, Comedy Central and Spike.
Mr. Moonves, for his part, wants to get in sync with the
relatively new mogul, who rocketed to power this summer after a
bruising legal battle, even though he isn't yet persuaded of the
merits of the merger idea, people close to him say. He also has an
escape hatch: Under his contract, Mr. Moonves can leave if he is
replaced as chairman or no longer reports to the current CBS
board.
The Redstone family's holding company, National Amusements,
which owns 80% voting stakes in both Viacom and CBS, asked them on
Thursday to consider a merger. In the letter, National Amusements
said any transaction should proceed only with approval from each
board, and said the Redstone family won't cast votes as board
directors.
Ms. Redstone is vice chair of both companies and president of
National Amusements.
Viacom bought CBS in 2000 only for the companies to split six
years later because Mr. Redstone, who was then firmly in control,
believed CBS and its traditional media assets were holding back
Viacom's younger-skewing platforms.
Ms. Redstone, by contrast, is enamored with the idea of
reuniting and has broached it with Mr. Moonves, who would lead the
combined companies. He remains unconvinced such a pairing would be
good for CBS shareholders or his own self-interests.
CBS could benefit from Viacom's international operations, and
there would likely be sizable cost-savings from combining the two
companies. CBS could win more leverage in negotiating distribution
fees with cable and satellite operators if it can fix Viacom's
networks and would also get ownership of Paramount, a major movie
studio, something Mr. Moonves has long wanted.
A merger would also saddle CBS with Viacom's heavy debt load and
underperforming businesses. Many of Viacom's networks are
struggling to make content that will appeal to younger viewers,
which was once its bread-and-butter. A key question is what
premium, if any, Viacom would receive in a merger.
One way Ms. Redstone might entice Mr. Moonves to agree to a
merger would be to eventually give him a meaningful voting stake in
National Amusements, people familiar with the Redstone empire say.
She will effectively have a majority of votes on the trust that
will control the holdings of Mr. Redstone, who is 93, after his
death.
Ms. Redstone has no such offer on the table, a person close to
her said.
Mr. Moonves has previously raised the idea of a tie-up with Time
Warner Inc. and has even pondered escaping the Redstones
altogether. CBS explored the possibility of buying control from
National Amusements by teaming up with private-equity firms almost
two years ago, people close to Mr. Moonves said.
Under Mr. Moonves, CBS has performed far better than Viacom,
riding prime-time hits like "The Big Bang Theory," NFL football and
the growing business of licensing its library of shows to streaming
outlets. Despite declines in television audiences for the entire
industry, CBS remains the most-watched broadcast network thanks to
its lineup of popular crime dramas such as the "NCIS"
franchise.
But its shows are rarely critical darlings, and the network can
appear risk-averse. It has had problems launching new comedies, the
median age of its audience is older than its rivals and its hefty
sports-rights payments, locked in long-term deals, are a potential
risk if more viewers shift from TV to digital platforms.
Like its rivals, CBS is embracing online platforms. Next year,
it is debuting a new "Star Trek" series exclusively for its
$6-a-month streaming service, CBS All Access.
"We are really happy with the hand we are playing," Mr. Moonves
said at a recent investor conference. CBS said on Thursday it would
evaluate the merger idea and act in the best interest of its
shareholders.
Mr. Moonves and Ms. Redstone couldn't be more different. Mr.
Moonves, who tried his hand at acting before going into the
television business, is the ultimate Hollywood insider. He built a
strong record at greenlighting hit shows while running Warner Bros.
Television, including "Friends" and "ER."
The 66-year-old exudes confidence bordering on cockiness,
especially when his network is doing well. When he joined CBS as
head of entertainment in 1995, it had fallen far in the ratings and
few producers wanted to pitch shows there.
At CBS parties, a special area is often set aside for him, and
he often has an advance man who makes sure everything is in place
for his arrival. Wherever he goes, executives, talent agents and
Hollywood producers and stars line up to greet him.
While Mr. Moonves loves playing to a crowd, Ms. Redstone eschews
attention and tends to open up only around close friends and
associates, a person who knows her says. However she is no
wallflower. Her often tempestuous relationship with her father has
given her a strong backbone, which was on display as she maneuvered
her way through a power struggle atop Viacom this spring and summer
in which she solidified her position as her father's No. 2 and
exiled a rival.
After CBS was spun-off and Mr. Moonves named chief executive, he
typically kept Ms. Redstone at arm's length, according to former
executives. He focused his efforts primarily on keeping then-CBS
Chairman Mr. Redstone happy, allowing him to focus on running the
company with less interference.
Since it wasn't certain Ms. Redstone would succeed her father,
Mr. Moonves didn't go out of his way to woo her, but also wasn't
dismissive of her the way his predecessor, Mel Karmazin, had been,
the former executives say. Mr. Karmazin declined to comment.
"It was respectful wariness," said one former associate of Mr.
Moonves's early relationship with Ms. Redstone, adding that, "'will
this person help me or hurt me?' is the prism through which Leslie
sees everything."
Over the past few years the two have become closer, people close
to the pair say. And throughout the power drama at Viacom, while
Mr. Moonves kept a low profile, he showed support to Ms. Redstone
at key moments.
Early this year, both executives had reason to be frustrated
with the power equation at Viacom. They shared a rival, Viacom
Chief Executive Philippe Dauman, who was like a surrogate son to
Mr. Redstone and was in an enviable position in the empire.
If Mr. Redstone died or was incapacitated, Mr. Dauman would be
one of the seven people managing the trust that would take over his
holdings in both CBS and Viacom. Mr. Moonves, in a way, would be at
least partly beholden to Mr. Dauman, while Ms. Redstone would be
losing her chance to inherit real control of the family
business.
"If Philippe kept his power, Leslie felt vulnerable," the
associate of Mr. Moonves said, adding that made him "change his
tune" toward Ms. Redstone. Meanwhile Ms. Redstone didn't view Mr.
Moonves as a threat to her power, unlike Mr. Dauman.
In February, Mr. Moonves won the backing of CBS's board,
including Ms. Redstone, to replace the aging Mr. Redstone as
chairman. In a statement praising Ms. Redstone, he said, "Her
business acumen and knowledge of the media space remain very
important to me as we move forward."
Those remarks, while standard corporate material, were viewed in
Ms. Redstone's camp as an important show of faith while she was
fighting the Viacom board to prevent it from giving Mr. Dauman a
similar promotion. She was the only director who opposed his being
named chairman the day after Mr. Moonves's appointment.
"It came at a time when she was under attack," said a person
close to Ms. Redstone. "It was not perfunctory, it was
meaningful."
The power dynamic in the empire changed markedly in May, when
Mr. Redstone dismissed Mr. Dauman and Viacom director George Abrams
as trustees and members of the National Amusements board. In one
stroke, he had sidelined the common rival of Mr. Moonves and Ms.
Redstone.
Gradually, it became clear Ms. Redstone was gathering influence.
Several of the people Mr. Redstone chose to replace Messrs. Dauman
and Abrams on the trust and National Amusements, and to replace
five Viacom directors, had close ties to her.
Messrs. Dauman and Abrams sued to be reinstated, while Viacom's
board also fought in court to block the dismissal of independent
directors. They argued that the nonagenarian mogul was mentally
incompetent and being manipulated by Ms. Redstone. She denied the
charge.
By the Sun Valley event in July, Ms. Redstone looked like she
had the winning hand, according to most observers. Mr. Moonves
showed her the ropes at the event, where she was a first-timer. The
two shared a chuckle when after days of signaling he would attend,
Mr. Dauman was a no-show, according to a person close to Ms.
Redstone.
In August, the power struggle was settled. All lawsuits were
dropped, Mr. Dauman was ousted as CEO, leaving with a package
valued at $72 million, and the Redstone family's appointees joined
the Viacom board.
Investors are now waiting on her to chart a path, as Viacom's
financial hole widens. Earlier this month, Viacom's board halved
the company's dividend and canceled an earlier effort to sell a
stake in Paramount Pictures.
The most likely option is to find a caretaker CEO to take over
when interim CEO Tom Dooley departs in mid-November. That will
provide some breathing room to hash out a CBS deal, analysts
say.
These days, Mr. Moonves and Ms. Redstone chat often. Ms.
Redstone has a photograph of the two at a football game in her
suburban Boston home. Along with Viacom board members Ken Lerer and
Nicole Seligman and her business partner Jon Miller, Mr. Moonves is
a member of Ms. Redstone's inner circle of advisers.
"He's filled the role as a sounding board," said one person
close to Ms. Redstone. He provides "kind of a reality check" in
some ways.
Mr. Moonves isn't opposed to deals. He just sees a better fit
with Time Warner, the parent of Warner Bros. and cable networks
TNT, CNN and HBO. Mr. Moonves raised the idea with Time Warner
Chief Executive Jeff Bewkes most recently in 2015, people with
knowledge of the discussions said.
Mr. Moonves thinks a combination of CBS and Time Warner would
better position both companies for the digital disruption eating
away at traditional media, people close to him said. Time Warner's
Mr. Bewkes hasn't reciprocated the interest, wary of the deal logic
and skeptical the companies could reach an agreement on price, one
senior Time Warner executive said.
Among the challenges are whether a CBS-Viacom deal can work for
Mr. Moonves's shareholders. One person familiar with CBS said,
"he'll do it if the deal is at the right price."
--Shalini Ramachandran and Joann S. Lublin contributed to this
article.
Write to Joe Flint at joe.flint@wsj.com
(END) Dow Jones Newswires
September 29, 2016 11:39 ET (15:39 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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