With CBS CEO Moonves on the Ropes, Viacom Merger More Likely

Widely admired CBS Corp. (NYSE: CBS) CEO Les Moonves has a big problem. The New Yorker ran an article that charged that he sexually harassed six women. The typical pattern for charges like this is that the company board hires outside counsel and the results are announced to the public once the process is complete. Moonves is not only the head of CBS. He is also the major force behind an effort to block a marriage between CBS and Viacom Inc. (NASDAQ: VIAB). If he is pushed out, the merger becomes almost certain.

The Redstone family has controlling interests in both CBS and Viacom. Shari Redstone, who sits on both boards, believes the two entertainment companies should be together. Her argument is reasonable. The two companies together could cut costs. Each company is up against powerful and large competitors, including Walt Disney Co. (NYSE: DIS), which is buying a number of assets from Twenty-First Century Fox for $71 billion. This may make Disney the largest entertainment company in the world. AT&T Inc. (NYSE: T) just bought Time Warner, which gives it a range of entertainment properties to add to its wireline, wireless and satellite distribution operations. The merger of large entertainment companies may not be over. These traditional media operations effectively have been challenged by tech companies that are also now entertainment operations, with Amazon at the head of the list.

Redstone has been challenged by the CBS board led by Moonves, who believes she should not control CBS and Viacom on her own. Boards, they argue, have a function. Among these is to decide what is best for shareholders. Moonves believes a tie-up with Viacom is a bad idea.

Another wrinkle in the drama was that Moonves eventually wants his chief operating officer to run a combined company, if there is one. This puts the Moonves pick, Joe Ianniello, up against Redstone’s pick to take over a combined operation, Viacom CEO Bob Bakish. Redstone has dropped the demand, but if Moonves is pushed out, her decision might change.

The biggest hurdle between Redstone and her vision of a merged CBS and Viacom is Moonves, and he could be gone soon.

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