Viacom and CBS Corp. controlling shareholder National Amusements has withdrawn its proposal for the two entertainment companies to explore a recombination.
The news came after a CNBC report early in the day had said that Shari Redstone, daughter of Sumner Redstone, has pulled her support for the merger idea.
National Amusements, which controls 80 percent of the voting shares of both Viacom and CBS and is privately owned by Sumner Redstone and his daughter Shari, in late September had called on the companies to explore a possible recombination. They have operated as separate companies since their split in 2006.
Viacom’s stock, which has gone higher since the deal proposal was first announced, dropped 7.4 percent in early Monday trading. CBS shares were down 2.9 percent early in the trading session. Investors had expected that CBS Corp. chairman and CEO Leslie Moonves, who is popular on Wall Street and is known as a strong operator, would run a combined company and could close down smaller networks and look to improve the ratings and advertising performance of Viacom’s cable networks.
But sources have said that the companies had challenges agreeing on the valuation for a deal, and governance issues, such as the Redstones’ influence over the operations of a merged entity, were also seen as a possible stumbling block. One banker said that putting a valuation on Viacom was difficult amid its recent U.S. ratings challenges, suggesting that CBS was likely looking at the possible financial downside risks, while Viacom was focusing on possible upside.
NA had said this fall that a combination “might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape.”
NA in its Monday letter to the members of both companies’ boards said: "Members of the boards: This past September, we asked the boards of CBS and Viacom to consider a potential combination. We believed that given the industry landscape, a merger might redound to the benefit of both companies and their shareholders. On a parallel track, we urged both companies to move forward with steps to strengthen their operations on a stand-alone basis.”
It continued: “Over the past few months, after careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge the companies. Following the management changes that the Viacom board put in place, we have been very impressed with the forward-looking thinking and strategic plan being pursued under Bob Bakish's leadership. We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed. At the same time, CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis.”
The letter added: “Based on our assessment of the strengths, progress, and future prospects of both companies, we are requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward. We are incredibly proud of the talented and hard-working individuals who comprise both companies, and who are truly second to none in the industry. We would like to thank the boards and special committees of both Viacom and CBS for their consideration of our request.”
Viacom said in a statement: "We can confirm that Viacom has received the letter sent today by National Amusements, and the company will provide further updates accordingly."
Bakish recently told THR that he was focused on running Viacom as a standalone company while a board committee was reviewing a possible CBS deal. “I have been chartered by the board to focus on running Viacom as a strong independent company and putting in place a strategy, which will grow the company over time,” he said.
Moonves has long said a deal would only happen if it makes sense for shareholders. He had told a UBS investor conference earlier this month that committees, lawyers and bankers have been doing their things, concluding: “We’re looking at it — we’ll see what happens.”
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