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Is Moonves' Ouster at CBS a Victory for Viacom?

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On Sunday it was reported that CBS (CBS - Free Report) CEO Les Moonves would relinquish his role at the company amid reports of decades of inappropriate behavior both before and after he joined the company. An internal investigation is underway, mostly to determine the value of Moonves’ severance package which could be anywhere from zero to over $100 million, but it is clear that he will no longer lead the entertainment and broadcast giant.

COO Joe Ianniello will take the helm on a temporary basis while the board conducts a search for a permanent replacement CEO.

Lost amid the salacious details of the accusations against Moonves – CEO of the largest company to date to be felled by the #MeToo movement – is the fact that his departure has major implications for the efforts of Viacom (VIAB - Free Report) and the privately held parent of both companies, National Amusements (NAI) and its president Shari Redstone, and their efforts to merge Viacom and CBS, a move which Moonves had long opposed.

Redstone and National Amusements, which owns roughly 80% of the voting shares of both CBS and Viacom, had been involved in protracted litigation against CBS as Redstone sought to merge the media empires (which were previously a single company before CBS was spun off from Viacom in 2006) and the board at CBS favored diluting Redstone’s voting rights to preclude a deal.

The legal wrangling has been ongoing for the past two years but now appears to be at an end. At the same time CBS announced Moonves’ departure, it was also announced that a settlement was reached in which both sides would agree to dismiss litigation and that Redstone and NAI would not pursue a merger of Viacom and CBS for a period of two years. CBS also announced that six existing board members would be replaced with six new independent members.

The agreement does not preclude either side from engaging in potential deals with any other companies.

Shares of both companies have lagged the mass-media market in 2018 as uncertainty about a potential deal and the costs and distraction of protracted litigation cast doubt on the ability of either company to pursue growth opportunities.

Both CBS and Viacom currently carry a Zacks Rank #3 (Hold).

Though market reaction to these new developments has been muted in Monday’s trading, with CBS shares shedding just less than 2% and Viacom essentially unchanged on the day, these announcements should be a net positive for both firms as CBS gets out from under the cloud of the accusations against Moonves and both sides can move forward as independent companies with substantially similar ownership an a common goal of growing their respective media footprints.

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