CONTENT IS STILL KING

 
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CBS Corporation and Viacom Inc. have announced they will combine in an all-stock merger to create ViacomCBS, a global producer and distributor of premium content. The Elevation Capital Global Shares Fund owns shares in both Viacom and CBS. We first invested in Viacom in 2014 and a copy of our original presentation may be found here.

Both companies are controlled by the Redstone family which has been a dominant force in US media for decades. CBS and Viacom have been independent companies since 2006 when Sumner Redstone, who popularised the phrase “content is king” in the mid-1990s, broke them up to crystalise value in Viacom. We agree with his daughter and chairperson of the combined entity Shari Redstone that in the wake of current media industry trends, and the mega-mergers of Disney with Fox and AT&T with Time Warner, it is a “logical move” to re-unite the two halves of this historic media empire.

In a world where “content is still king” we believe this merger will create significant value for shareholders by bringing together the most-watched US broadcast TV channel with the owner of the Paramount Pictures film studio and a portfolio of cable channels.

 
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CBS and Viacom combined spent more than $13billion on content creation in the last 12 months. The combined entity will be the third largest content spender after Netflix and Disney (the latter of which the Fund also owns shares in).

 
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This is not where the story ends. The merger will deliver an estimated $500million in annualized run-rate synergies and increase financial scale with substantial free cash flow. It would be strategically logical for ViacomCBS to acquire one of the smaller content producers (listed in the graph above) and overtake Netflix in content spend.

 
 

The Fund owns shares in Discovery Communications which targets youth and niche audiences that are complimentary to the ViacomCBS’ own presence in these demographics. We expect Discovery to be a prime candidate for merger discussions with ViacomCBS. You may learn more about Discovery Communications by reading our research and investment thesis on the company here.

 
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