The Day After CBS and Viacom Announce Merger, Mixed Reactions

Viacom and CBS

Yesterday was the day after the day before. The day before, of course, being the day that CBS and Viacom announced their intention to merge into ViacomCBS, thereby unifying the Star Trek franchise back under one roof. As I detailed yesterday, Star Trek is far from the only consideration for the merger, although for Star Trek fans it is a potential major consequence. Tuesday’s media was largely positive, brimming with excitement of the new mega-entity, but now that the dust has cleared, media outlets and Wall Street pundits alike spent Wednesday compiling reactions to the news. The reactions, shall we say, were mixed.

If you Google “CBS Viacom merger” today, one of the first results is Deadline’s article titled “‘Star Trek’ Poised To Become New Marvel? CBS & Viacom Merger Brings Franchise Under One Fleet”. In the piece, Deadline asserts that “While it may not be the Marvel Universe just yet, the greater Trekverse has the potential to eventually rival the Disney-owned comic giant in both legacy and currency – especially with Shari Redstone’s developing strategy of creating a great global footprint.” I’d call that a positive.

Variety, however, has a slightly different take. In Tuesday’s announcement, CBS noted that they would see a cost benefit from “synergies” between the two companies, and Variety on Wednesday focused on the reactions of staff. In their article titled, “CBS-Viacom Merger Internal Reaction: Relief, ‘Some Anxiety’ and Plenty of Questions”, they note: “Plenty of questions remain, including the usual uncertainty of what kind of job loss might come with consolidation. Staffers want to know what it all means — and there are no quick answers. Viacom and CBS already operate lean programming teams, but there will likely be some trims in back offices such as human resources and IT. However, unlike the recent Disney/Fox merger (where plenty of divisions overlapped), Viacom and CBS mostly operate unique businesses — keeping concerns about massive trims, at least at this moment, to a minimum.”

The Hollywood Reporter notes, in a similar vein, that Viacom’s current CEO and the pending President and CEO of ViacomCBS, Bob Bakish, spoke to Viacom staff in his quarterly “Bob Live” session on Wednesday. He addressed the issue of personnel directly, saying that while there were no imminent changes to Viacom leadership as part of the deal, they “will hear more leadership announcements before the end of the year.” That’s thinly-veiled corporate-speak for “maybe now would be a good time to update your resume”.

And then there are the analysts: the guys on Wall Street who rate companies based on whether they think they’re a good stock buy. And the analysts were not kind to the CBS and Viacom merger news.

The New York Post published an article yesterday called, “Wall Street slams CBS-Viacom deal, causing drop in companies’ stocks”. While the New York Post is not particularly known for its sensible and balanced reporting, they did raise a couple worthy points. They noted  Bernstein analyst Todd Juenger characterized the merger as a copycat move, quoting him saying “CBS/Viacom, like many others, has seen the stock market’s positive reaction to Disney’s plans and decided ‘let’s do that too.’” In that note, Juenger downgraded CBS’s rating to “underperform”. Likewise the Post noted lukewarm reactions from analysts at BMO and Macquarie.

Later in the piece, the New York Post did note that a couple of analysts were more positive about the deal: Merrill Lynch’s Jessica Reif Ehrlich upgraded CBS on the basis of its promised “synergies”, and CFRA analyst Tuna Amobi cited a compelling long-term case for the combined entity.

However, the numbers for CBS and Viacom spoke for themselves on Wednesday. While it was a disastrous day for the market overall, which plummeted as a result of what’s called an “inverted yield curve”, CBS and Viacom individually fared much worse than the average. While the Dow Jones fell by 3.1%, noted the New York Post, Viacom and CBS closed the day down 8.5% and 8.1%, respectively.

As they say, “the market hates uncertainty”. So Wednesday’s stock performance should be taken with a large pinch of salt: we are still in the very early stages of the merger process. But nonetheless, the market reaction on day 2 was a bit of a downer.