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Stock Analyst Update

War Between CBS and Redstone Goes Nuclear

We think a reunion of Viacom and CBS is unlikely to occur any time soon after the latest spat.

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The ongoing power struggle between  CBS (CBS) CEO Les Moonves and controlling shareholder Shari Redstone escalated to ridiculous heights on Thursday evening after the Delaware chancery court denied a request by the board and Moonves for a temporary restraining order against National Amusements. Despite not receiving the restraining order, the board at CBS went ahead with its planned vote on a proposal to issue a special dividend of Class A shares to all holders of the Class A and Class B shares. The vote which was passed by an 11 to 3 margin is effectively symbolic as the company will not issue the shares without the approval of a judge. Prior to the vote, Redstone moved that any special dividend of shares needs to be approved by a supermajority of 90% of the board or 13 of the 14 members. Due to the ongoing drama, the annual meeting for CBS that was scheduled to occur on May 18 has been postponed to an undetermined date.

We believe that a reunion of Viacom and CBS is unlikely to occur in the near term due to the current public spat between Redstone and Moonves and the unanimous rejection of the merger by the special committee at CBS. We think that these events would make it difficult for National Amusements and Redstone to convincingly argue that a merger of the two firms would be in the best fiduciary interests of CBS shareholders. While Redstone and National Amusements could stack the board with more amenable members, we believe that the controlling shareholder would have to wait until the annual meeting in 2019 to do so. We are maintaining our narrow moat ratings for both firms and our fair value estimates of $71 for CBS and $35 for Viacom.

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Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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