The news surprised investors, who had been betting on a merger after months of discussions between America’s leading broadcast network and the owner of Paramount Pictures and MTV. Viacom shares fell as much as 8 per cent in morning trading while CBS dropped 3 per cent.
“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,” National Amusements Inc, the holding company through which the Redstones control 80 per cent of both companies, said in a letter. It added that Viacom has “tremendous assets that are currently undervalued”.
Mr Redstone split CBS from Viacom in 2006 but NAI proposed an all-share merger of the companies in September, saying it would help them compete better in the “challenging entertainment and media landscape”.
However after months of discussions the companies were unable to agree on a Viacom valuation. Viacom and some of its independent shareholders argued for a premium to its share price which CBS was unwilling to pay, one person briefed on the negotiations said.
Les Moonves, chief executive of CBS, wanted full control of the newly combined company and Shari Redstone was not willing to give him that, according to one person close to the Redstone family.
Viacom recently appointed Bob Bakish acting chief executive and his plans for the company, which owns a portfolio of cable channels that includes Comedy Central, BET and Nickelodeon, have impressed Ms Redstone. NAI said it was confident that “with this new strong management team, the value of [Viacom’s] assets can be unleashed”.
Viacom is looking to revive its business after legal battles engulfed the group over the summer, culminating in the departure of chief executive Philippe Dauman and leaving Ms Redstone in pole position to lead her ageing father’s empire.
Mr Moonves, who is credited with turning around CBS, fought to keep independent the company he had inherited in 2006, one person briefed on the negotiations said. Another person close to CBS’s management said that shareholders of CBS had expressed some concerns about the deal as they effectively saw themselves gambling the future of their company to save another one.
Analysts and investors had welcomed the notion of a CBS-Viacom merger, pointing to potential cost savings of between $250m and $600m and the prospect of greater leverage when the enlarged group was negotiating distribution deals.
When Mr Redstone decided to split Viacom and CBS a decade ago, Viacom’s prospects were seen as brighter because cable television was growing more quickly than broadcast. However, the fortunes of Viacom and CBS have reversed. Audiences and advertisers have flocked to CBS, while Viacom has struggled as young people ditched its cable networks for Snapchat and YouTube.
Viacom shares have dropped more than 50 per cent in the past two years as ratings plunged across its youth-focused cable channels, which range from Nickelodeon to Comedy Central, amid the industry-wide shift to digital streaming.
Viacom last month reported revenues and earnings slipped, held back by slumping ratings and disappointing performance of movies such as Zoolander 2. Mr Bakish has said Viacom has “clear weakness areas” and pledged to revive its ailing MTV network.
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