CBS, Viacom Stocks Rise After Redstones Call for Merger

Traders work on the floor of the New York Stock Exchange (NYSE) 3-Getty-H 2016
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National Amusements formally calls for the two entertainment companies to reverse a separation that went into effect at the start of 2006.

The stocks of Viacom and CBS Corp. moved slightly higher in early Thursday market trading after National Amusements, Sumner Redstone's holding company, in a letter formally urged the two companies to explore a merger. 

The stock of Viacom had ended 2.7 percent higher on Wednesday amid chatter that the merger call would be coming soon. After a few minutes of Thursday trading, both stocks were slightly lower before CBS moved into positive territory, followed by Viacom.

As of 2:00 p.m. ET on Thursday, Viacom class B shares were up 3.9 percent to $37.89 from $36.21, while CBS shares were flat at $54.35, up 0.3 percent from where they started the day. The broad-based S&P 500 index was down 0.1 percent.

Wall Street has said Viacom would be the main beneficiary of a recombination given CBS' trusted management team, led by chairman and CEO Leslie Moonves, and stronger financial performance. But on Wednesday in anticipation of the National Amusements call for a merger, several analysts came out saying CBS would only agree to a deal if it makes financial and operational sense for the company. 

“As the spread in market valuation between Viacom and CBS has widened, we do believe that the attractiveness of a combination to CBS leadership has likely increased,” Guggenheim Securities analyst Michael Morris wrote in a report.

"As expected, NA isn't forcing a combination," Wells Fargo analyst Marci Ryvicker said Thursday. "We still think CBS (and particularly CEO Les Moonves) is in the driver's seat here."

National Amusements' letter formally called for the two entertainment companies to reverse a separation that went into effect at the start of 2006. Published early Thursday, it suggested the companies' boards consider a possible reunion a decade after the companies split, proposing an all-stock deal. 

Via privately held National Amusements, Sumner Redstone controls 80 percent of the voting shares of both Viacom and CBS. Daughter Shari Redstone is understood to have brought up a possible recombination with CBS chairman and CEO Leslie Moonves earlier in the year, but so far no official talks have been held.

National Amusements said 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. It made clear that the company would not accept or support "any acquisition by a third party of either company or any transaction that would result in National Amusements surrendering its controlling position" in either company or lead to some other entity controlling the combined company.

Viacom and CBS said they have received the letter from National Amusements and would take the necessary next steps.

Mario Gabelli, the billionaire investor who is Viacom's largest shareholder behind the Redstones, told THR on Wednesday that he was in favor of a CBS-Viacom merger, in part because the larger scale would help the company in striking carriage deals. "Is it logical? Yes, if CBS is thinking, how do I go global quickly? This is one way," said Gabelli. He added that for Shari Redstone "romancing Les [Moonves] has got to be a high priority right now."