CBS would be better off partnering with Verizon, not Viacom, analyst says

Viacom
The speculation around CBS and Viacom fired up on Friday afternoon. (Image: Ben Munson)

As rumors once again swirl regarding a Viacom remerger, Rosenblatt analyst Alan Gould said that CBS would be better off partnering or merging with Verizon.

In a research note, Gould said a combination of CBS and Viacomboth of which are controlled by Shari Redstone’s National Amusementswould offer little by way of synergies. Rosenblatt has downgraded Viacom to sell, which could lead to Viacom stock falling more than 5% in trading today.

The possibility of companies like CBS and Verizon merging seems slightly more likely amid the accelerated pace of media industry M&A coming out of 2017 when Discovery acquired Scripps, Disney bought a large chunk of Fox and AT&T continues toward its acquisition of Time Warner.

Barclays analyst Kannan Venkateshwar said that the most recent talk of a CBS-Viacom recombinationset off Friday by conflicting reports of internal discussions at the companiesis similar to speculation that’s happened before. However, the current media industry environment is different this time.

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“This of course is not the first time this deal has been speculated but the environment is different relative to prior periods because of (a) recent media mega deals including Discovery/SNI, (b) Viacom’s core performance deteriorating further, (c) advertising weakness at CBS, and (d) the continued non-carriage of Viacom’s networks in new OTT bundles like Hulu and YouTube. Also, in our opinion, CBS cash flow could become a bigger focus for investors in coming quarters and years,” wrote Venkateshwar in a research note.

Barclays’ view of the deal is that it could buy Viacom and Paramount some more time for their respective turnarounds and perhaps give Viacom more negotiating power with distributors (though that could also impact CBS’s retrans revenue growth). But a recombination would not serve as a long-term fix for Viacom.

“…The combination, if considered is more about pushing the can further down the road and buying some time for Viacom in our opinion. While upfront synergies could be meaningful, that wouldn’t change the terminal value, in our opinion,” wrote Venkateshwar.

The speculation around CBS and Viacom fired back up last Friday afternoon, as The Wrap reported that Shari Redstone, vice chairman of both CBS and Viacom and president of National Amusements, which controls both companies, was pursuing a remerger for the companies and that CBS CEO Les Moonves was on board with the idea.

But shortly after that, Reuters issued a report contradicting the remerger talks. Reuters sources said that Redstone is having exploratory conversations with CBS directors about recombining the companies but that the companies are “not in active merger discussions.”