Here’s what it would take for CBS and Viacom to merge

After 10 years as separate companies, CBS and Viacom will now consider merging. The Redstone family, which controls both companies, has formally asked both boards to look at a combination.

Media observers and analysts have talked about the likelihood of a merger for months. But this is the first action taken by anyone who matters, in this case Shari Redstone, who took over for her family after the health of her 93-year-old father, Sumner, continued to decline. Reuters first reported on the proposal.

So what would a deal take?

There are only two people to pay attention to here: Shari Redstone and Les Moonves, who runs CBS and would run the combined company if Shari ultimately has her way, according to sources.

The question is if Moonves wants to do the deal.

He has long resisted a merger, according to several sources, because it would mean having to fix Viacom. The 66-year-old executive doesn’t want to finish out his career saddled with a faltering business, they say.

Convincing him wouldn’t just be a matter of money. Moonves is already one of the highest-paid executives in the country, making a combined $180 million over the last three years.

What he would need is effective control of the company, according to sources, which would mean Shari Redstone would have to find a way to assure him without giving up her family’s ownership.

Shari controls both CBS and Viacom through voting shares owned by her family’s company, National Amusements, and she isn’t going to give up any voting shares.

But one plan being considered is the possibility she would vote her shares however Moonves preferred, until he retires, according to two insiders.

That would give Moonves — considered a superlative programmer, some say the best of the last few decades — the room to make whatever moves he thought necessary to shoring up Viacom.

And as far as Shari Redstone is concerned, she really just wants someone who can make Viacom (and CBS) more valuable. If giving Moonves effective control achieves that, it shouldn’t matter how she votes her shares.

A spokesperson for CBS said in a statement: “As we’ve said before, the CBS Corporation will always act in the best interest of all of its shareholders.” Representatives for Shari Redstone declined to comment. Viacom did not immediately respond to a request for comment.

Moonves has good reason to be wary of taking on Viacom. In the long-running narrative detailing the internet’s decimation of the media business, Viacom figures as its first central character. CBS, by contrast, is the lone superstar.

Viacom owns MTV, Nickelodeon, Comedy Central and Paramount, and it’s seen lowered profits, fewer viewers and a debt load exceeding $12 billion. That’s what led this year to an epic power play over its management, resulting in the ouster of both CEO Philippe Dauman and his would-be successor, Tom Dooley, now serving as interim chief till mid-November.

Fixing Viacom could mean anything, including selling off pieces of the company like some of the lower-performing networks. Dauman attempted to sell a 49 percent stake in Paramount as a way to improve the company’s cash position, but that move prompted Shari and her father, Sumner, to push him out.

Moonves is less likely to consider a stake sale of Paramount, not only because of the Redstones’ sentiments, but because he still likes the idea of having a studio. When CBS was split off from Viacom in 2006, Moonves regretted that Paramount wasn’t included in CBS’s portfolio, according to several sources.

Moonves would also want to make sure a deal would benefit CBS shareholders, who conceivably might have more to lose in a merger, as CBS would have to take on Viacom’s crushing debt load.

But the markets tell us differently. Both CBS and Viacom stocks are up on the news, for now, suggesting CBS shareholders may not shy away from a deal:

And here’s Viacom:

Investors are reacting to a few things here. The obvious thesis is that by merging the two, a larger company would have more negotiating leverage when dealing with cable and satellite distributors.

Moonves, in fact, profited greatly off the licensing fees he negotiated from the cable and satellite distributors that carry CBS. Those fees will bring in more than $1 billion this year and is projected to double in four years.

CBS also has expensive rights to major pro sports franchises, content that’s now crucial to TV networks since live sports are still (mostly) internet proof.

But those contracts will have to be renegotiated by 2021 or 2022, and it’ll become much harder to win those renewals if companies like Google and Facebook decide they need live sports, potentially making the bidding go higher.

Before Shari Redstone made a move for a merger, some CBS executives had been considering looking to sell the network to a big tech company like Google (officially, Alphabet) as a longer-term move, according to two sources.

Another possibility, according to the same sources, was merging with Time Warner in an effort to shore up the bundle of channels that still drives so much of the TV business.

That explains the state of media companies today — even a high-flying, well-run company like CBS sees the headwinds coming as the internet continues to eat away at viewers’ attentions.

The point being, some kind of merger or acquisition will likely have to happen for both Viacom and CBS, whether or not it’s with each other.

This article originally appeared on Recode.net.