Viacom stock finished Tuesday down 7.1%, closing at $31.38 per share, after the initial enthusiasm around a possible recombination with CBS fizzled almost as quickly as it began.
Viacom shares were up more than 7% ($2.95 per share) on Friday (Jan. 12), closing at $33.76 each after media business website TheWrap reported that talks have been restarted about putting the two companies – split in 2005 – back together again. According to TheWrap, the catalyst behind the recombination was none other than Shari Redstone, vice chairman of National Amusements, and along with her father Sumner Redstone – founder of NAI – the largest individual shareholders of both companies.
CBS shareholders were apparently pleased that no deal seemed imminent – its shares were up 1% (60 cents) to $59.43 each on Tuesday.
Neither Viacom nor CBS would comment on the deal speculation, but shortly after TheWrap story surfaced – driving Viacom stock northward – reports from Reuters and CNBC said no formal talks were occurring. The final nail in the speculation appeared to come on Tuesday, when CNBC reported that neither side had hired bankers or advisers.
Shari Redstone’s desire to put the two companies together is no secret. She tried to do the same about a year ago when in the midst of an increasingly nasty power struggle with Viacom’s then-CEO Philippe Dauman (she won), Redstone had toyed with the idea of putting Viacom and CBS back together. She changed her mind after naming Bob Bakish, a long-time Viacom executive, as permanent CEO of the company, impressed she said at the time with what she called a resurgence in energy at the company and a desire to see the new CEO’s plan to revitalize the brand play out.
Analysts have been saying since the beginning that a recombination makes little sense for CBS unless it gives the broadcaster’s management full control of the combined company and pays CBS shareholders a ridiculously high price.
“In other words, we think a deal would only make sense if CBS is on board, and they'd only be on board if they're getting a very, very, very accretive price,” RBC Capital Markets media analyst Steven Cahall wrote in a recent report.
Barclays media analyst Kannan Venkateshwar wrote that while a deal will not solve Viacom’s deeper problems – like subscriber erosion and a declining ad market – it could provide some additional runway to execute its goals.
“The combination, if considered is more about pushing the can further down the road and buying some time for Viacom in our opinion,” Venkateshwar wrote.