Viacom And CBS May Be Merging Soon

CBS and Viacom Inc. (NASDAQ:VIA) may be getting back together after spending nearly a decade apart. Reports emerged Thursday that they are considering a merger. Viacom bought CBS in 2000. The companies split six years later because of views that CBS and its traditional media assets were a drag on Viacom’s younger-skewing platforms.

The Redstone family’s holding company National Amusements owns 80 percent voting stakes in both Viacom and CBS. Shari Redstone, the daughter of media mogul Sumner Redstone, is vice chair of both companies and president of National Amusements. National Amusements said any transaction should proceed only with approval from each board. The Redstone family won’t cast votes as board directors.

CBS said it would evaluate the merger idea and act in the best interest of its shareholders. CBS chairman and chief executive Leslie Moonves hasn’t yet been persuaded of the merits of the merger idea, according to people close to him. He has not been convinced that the pairing would be good for CBS shareholders or his own self-interests. Under his contract, Mr. Moonves can leave if he is replaced as chairman or no longer reports to the current CBS board.

Mr. Moonves is widely regarded as having turned CBS into a profitable engine. The 66-year-old joined CBS as head of entertainment in 1995. Under Mr. Moonves, CBS has performed far better than Viacom. CBS remains the most-watched broadcast network thanks to prime-time hits like “The Big Bang Theory,” its lineup of popular crime dramas, and NFL football. However, it has had problems launching new comedies and the median age of its audience is older than its rivals.

CBS could benefit from Viacom’s international operations and win more leverage in negotiating distribution fees with cable and satellite operators. There would also likely be sizable cost-savings from combining the two companies. However, a merger would also saddle CBS with Viacom’s heavy debt load and underperforming businesses. Viacom is the struggling parent of Paramount Pictures and underperforming cable networks MTV, Comedy Central, and Spike.

The news comes shortly after the end of a painful power struggle at Viacom. In May, Mr. Redstone dismissed Viacom Chief Executive Philippe Dauman and Viacom director George Abrams as trustees and members of the National Amusements board. Dauman and Abrams sued to be reinstated, while Viacom’s board fought to block the dismissal of independent directors. In August, all lawsuits were dropped, Mr. Dauman was ousted as CEO, and the Redstone family’s appointees joined the Viacom board. Ms. Redstone now essentially controls the $40 billion media empire.