CBS, Viacom, Discovery may merge for survival

A CBS-Viacom merger nearly happened last year, with the two companies agreeing to an exchange ratio, but talks fell apart over who would run a combined entity and board composition. Since then, CBS has retooled its board and former CEO Les Moonves resigned amid sexual misconduct allegations.

Redstone has long been in favor of putting CBS and Viacom together but can’t personally push for a merger for about two years, a result of a settlement between CBS and National Amusements last year that included the resignation of Moonves. CBS has a market cap of about $19 billion and an enterprise value of about $29 billion, while Viacom has a market cap of about $12 billion and an enterprise value around $20 billion.

Discovery, with a market capitalization of about $20 billion and an enterprise value of about $37 billion, could be appealing as a second step. Discovery and CBS have a mix of assets that make a combination strategically feasible and potentially compelling. Discovery’s strength is international programming and nonfiction cable stations, including the Discovery Channel, HGTV, Animal Planet and Food Network. CBS is led by the strength of its broadcast network and Showtime. Discovery could benefit from CBS’ retransmission fees and premium movie channel.

Viacom nearly acquired Scripps Networks in 2017 and was outbid by Discovery, which ended up buying the company for $14.6 billion. If a combined CBS-Viacom acquired Discovery, then Viacom and Scripps would come together after all.

The concept of putting together smaller media companies to gain scale has been long championed by John Malone, who controls more than 27 percent of Discovery’s voting rights. Malone also owns about 8 percent of Lions Gate Entertainment, another media entity that could eventually be rolled into a larger company. A CBS merger with Viacom before a Discovery deal would help Redstone keep control of a combined company.

“Not everybody is going to be able to do a global direct-to-consumer platform,” Malone said in November at Liberty Media’s annual investor day. “Many will be trying to move into that space as a supplier or a player, perhaps in some cases branded or in other cases as part of the food chain. … I think you can expect a lot of transactions.”

A spokesperson for Discovery told CNBC the company is not for sale.

“Discovery is not for sale,” the spokesperson said. “Any reports to the contrary is not accurate. We remain extremely confident in our growth strategy in the US and globally as we continue to build the leading portfolio of superfan brands in every market around the world.”