CBS and Viacom won’t be merging, after all

CBS Corp. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 9, 2016. U.S. stocks fell the most since Britain voted to leave the European Union, after a Federal Reserve official signaled more willingness to raise interest rates. Photographer: Michael Nagle/Bloomberg

(Michael Nagle/Bloomberg)

Viacom has dropped all plans to merge with CBS, backing down from a major proposal that the two firms’ parent company had touted as a potential boon to both companies earlier this year.

In announcing the promotion of acting chief executive Bob Bakish as president and chief executive, Viacom said Monday that it would dissolve the special committee that had been formed to explore a combination of the media companies.

That decision comes hours after the parent of CBS and Viacom, National Amusements – a privately held entertainment firm that owns controlling shares of both subsidiaries – said that now was “not the right time” to merge the companies. Pointing to recent changes in Viacom’s management, NAI said it was convinced that the struggling cable and film company boasted “forward-looking thinking” and had a compelling strategic plan.

The letter reflects a change in tone from September, when NAI executives urged CBS and Viacom to consider a deal. The potential tie-up would undo the split that turned CBS and Viacom into two separate companies in 2006.

[Network exec on ‘circus’ of 2016 race: ‘It may not be good for America, but it’s damn good for CBS.’]

The announcements follow a shake-up of Viacom’s board of directors earlier this summer – the result of a dramatic battle of personality and politics playing out within the family that controls NAI. The company’s reigning but ailing leader, the 93-year-old media titan Sumner Redstone, has been the focus of legal battles between his daughter, Shari Redstone, and several former associates who say they were ousted in a bid for control over the $40 billion media empire.

The court fights over the younger Redstone’s role in steering the company have been bitter, with Philippe Dauman – Viacom’s chairman and chief executive until he stepped down in August – and another Viacom board member, George Abrams, accusing Shari Redstone of manipulating her father into firing them. In return, Shari Redstone blamed Viacom’s lackluster performance on mismanagement.

Despite operating a number of major media enterprises, including Comedy Central, MTV, Nickelodeon and Paramount Pictures, Viacom’s stock has tumbled roughly 60 percent since 2014. Shares of CBS are at about the same level they were two years ago.

[Sumner Redstone wins fight with ex girlfriend as judge tosses competency suit]

“CBS continues to perform exceptionally well under Les Moonves,” NAI said in its letter, “and we have every reason to believe that momentum will continue on a stand-alone basis.”

At the time, the breakup between CBS and Viacom was pitched as a way for each company to operate more nimbly in a changing media industry. That logic appeared to be in play three years later when AOL and Time Warner parted ways in one of the biggest media breakups in history.

But since then, the industry has seen a comeback in consolidation as more entertainment and content migrate to the Internet. Analysts say businesses are increasingly trying to amass troves of media content against which they can sell valuable, technology-driven targeted advertising and extract lucrative licensing fees from other businesses that wish to air that content.

[Trump is ready to hand over the family empire. It doesn’t always go well.]

NAI said in September that recombining CBS and Viacom would allow executives to “respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape.” It also suggested that the two firms should study how to continue their operations as independent companies.

The letter appeared to vindicate Shari Redstone’s vision for Viacom. It also marked the latest in a string of victories against Dauman – whose settlement with the Redstone family in August paved the way for Shari to take control of her father’s business. Dauman had argued in court that Shari Redstone’s role as vice-chair of NAI, and her positions on the boards of CBS and Viacom, had always been “ceremonial” in nature.

But now, Shari Redstone has apparently concluded that it’s best for the two companies to stay separate, after all – prolonging questions about NAI’s intentions for Viacom and CBS in an increasingly competitive market for information and attention.

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