What the CBS-Viacom Merger Means for Investors

After years of negotiation, the companies have finally reached a deal

Less than two weeks ago, CBS and Viacom announced that they were merging to form a new company that will be known as ViacomCBS. The new mega-merger deal will create a new media empire worth more than $30 billion.

This is because it will combine the most-watched US television broadcast network with the parent company of Paramount Pictures, MTV and Nickelodeon. The deal followed years of on and off negotiations on the deal. The new chair of the company will be Shari Redstone, the daughter of Sumner Redstone. Her family controls the two companies separately.

As mentioned, the negotiations to merge the two companies have been ongoing for years. However, they picked up steam in April, when CBS announced that it was suspending the search for a new chief executive. The previous CEO, Leslie Moonves resigned in disgrace in September 2018 after he was accused of sexual harassment.

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The details of the deal

In the announced deal, CBS shareholders will have a 61% ownership of the combined company. The remaining 39% will go to Viacom investors. In addition, CBS will have 6 seats in the combined company board of directors. The management expects to make savings worth more than $500 million a year.

The new deal comes at a tricky time in the media industry. These days, most people in the United States have slashed their cable subscriptions. Instead, they have turned to streaming services such as those offered by Netflix, Hulu, and Prime.

In the coming months, this industry will face more competition as companies like Disney, Apple, Comcast, and AT&T are expected to release their streaming offerings. These companies are banking on their library of content and pricing to reach more people.

CBS has been in the streaming business for a while. Its product, CBS All Access has more than 8 million subscribers. With the new deal, CBS hopes to add Viacom content to its streaming platform with the goal of attracting more viewers.

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Data from the two companies

merge cbs viacom

In the past one year, the two companies have been struggling: CBS and Viacom stocks have lost 21.70% and 20% of their value. In the past three years, the two have lost 21% and 40% respectively. This year, the two companies have lost 5.28% and 4% respectively.

This means that they have each underperformed the overall stock market, which has made modest gains. As a result, the two companies appear to be undervalued. The two have a forward PE ratio of 7.5 and 6.0 respectively and a forward PS ratio of 0.99 and 0.77.

Their competitor, Disney on the other hand has a forward PE of 22 and a forward PS ratio of 2.8. This discrepancy is because investors expect Disney to have more growth as it prepares to launch its streaming service.

Looking at the balance sheet, CBS and Viacom have total assets of $23.84 billion and $23.65 billion and total liabilities of $19 billion and $15 billion respectively. They have a long-term debt of $9.35 billion and $8.9 billion respectively, while their cash balances are $216 million and $722 million.

In the trailing twelve months, the two companies have had revenue of $15.26 billion and $12.89 billion and net income of $3.0 billion and $1.65 billion. Therefore, with the new cost savings, the combined company will be at a good position to grow and handle the debt.

Useful external resources to understand CBS-Viacom Merger

  • Here's What a Viacom, CBS Merger Might Look Like - Barrons
  • Doubts Linger About CBS-Viacom Merger - Forbes

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