VIAB Viacom Inc

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)

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