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Viacom Chairman Sumner Redstone
Sumner Redstone in screening room at National Amusements, 1998. Photograph by John Blanding — Boston Globe via Getty Images

National Amusements Pulls CBS, Viacom Merger Proposal

Dec 12, 2016

Media mogul Sumner Redstone and his daughter Shari called off their failed effort to merge CBS and Viacom on Monday, sending shares of Viacom—widely viewed as the weaker company—down more than 7%.

The collapse of the merger, which never got beyond initial talks, raises questions about the future of both Redstone-controlled companies just as scale becomes more important in a media industry set to be reshaped by AT&T's (t) deal to buy Time Warner (twx).

The end of negotiations was not a complete surprise. Les Moonves, the longtime chief executive of CBS, said last week talks were still stuck in the early stages, more than two months after the Redstones asked the boards of both companies to explore a tie-up.

The two sides never entered talks on pricing and were far apart on Viacom's value, according to two sources familiar with the situation.

Shares of Viacom were down 7.2% at $39.40 in afternoon trading.

CBS shares initially rose 1.8%, touching a nearly 2-1/2 year high, after CNBC cited a New York Post report that Verizon Communications (vz) was interested in buying the company. Verizon declined to comment.

In afternoon trading, CBS shares were down slightly at $62.33.

STILL NEEDS FIXING

National Amusements, the privately held movie company through which Shari Redstone and her 93-year-old father control 80% of the voting shares of CBS and Viacom, said in a letter they stopped pushing for a deal on the expectation of a turnaround at Viacom under new leadership.

Viacom named Bob Bakish, who was head of the company's international business, acting chief executive officer at the end of October.

The company, which owns Nickelodeon, Comedy Central, and MTV, has been struggling to turn around declining ad revenue and ratings while CBS is home to top-rated shows such The Big Bang Theory and Thursday Night Football.

Mario Gabelli, whose firm is the second-largest owner of voting shares of Viacom and CBS, said he was not disappointed with the failure of merger plans and that he still believes that ultimately the two might merge.

"Viacom needs to be fixed," he said.

One sticking point in negotiations was that CBS's Moonves wanted autonomy over the merged company.

National Amusements was willing to compromise on this issue, but in the end decided to let Bakish retain control of Viacom, according to the sources, who wished to remain anonymous because they were not authorized to speak publicly.

Bakish is already taking action after a month on the job. Last month, the company announced it was buying Argentine broadcaster Television Federal from telecom carrier Telefonica for $345 million.

He has also replaced Viacom's head of distribution, Denise Denson, a longtime executive who worked closely with former CEO Philippe Dauman, and is working on a plan to turn around MTV, a top priority for him, he told Reuters in November.

A DECADE APART

In September, National Amusements called on Viacom (viab) and CBS (cbs) to consider recombining, 10 years after Viacom was spun off from CBS. Shari Redstone had been in favor of recombining the two under Moonves, sources have previously told Reuters .

Industry speculation that the two might rejoin increased this year after the Redstones prevailed in a power struggle that resulted in Dauman's departure.

A Viacom spokesman confirmed it had received the letter from National Amusements, which was first reported by CNBC. A CBS spokesman declined to comment.

National Amusement's letter also said: "CBS continues to perform exceptionally well under Les Moonves."

Relations between Moonves and Shari Redstone continue to be good, the source said. This week, the two plan to go to Boston for the premiere of the film Patriots Day, produced by CBS Films.

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