CBS, Viacom To Evaulate Consolidation

Taking the first step toward a possible merger, CBS Corp. and Viacom Inc.'s boards each have formed special committees to evaluate whether a consolidation of the two media companies would benefit shareholders.

According to The LATimes, CBS' decision, which came Thursday during a board meeting in Studio City, begins a process that could result in the reunification of the companies. Viacom simultaneously announced that its board also had formed "a special committee of independent directors to evaluate a potential combination with CBS Corp."

"The committee has retained independent legal counsel and is retaining independent financial advisors in connection with this evaluation," Viacom said in a statement.

CBS and Viacom, both controlled by the Sumner Redstone family, were one entity until Redstone in 2006 divided his empire into two companies in a bid to generate more wealth. But now, both companies face steep challenges as consumers migrate to streaming services and other entertainment platforms.

Redstone's daughter, Shari Redstone, tried unsuccessfully to combine the companies in 2016. At that time, CBS' board resisted reunification out of concern that Viacom's problems would weigh on CBS. The 2016 merger talks fell apart over issues of control and a proposed valuation of Viacom, according to people familiar with the situation but who were not authorized to speak publicly.

But Viacom has since improved its operations and devised a new business plan. Viacom owns MTV, VH1, BET, Comedy Central, Nickelodeon and the Paramount Pictures movie studio in Los Angeles.

Analysts have been mixed on the benefits of a merger.

"Potential of a recombination of CBS and Viacom would provide CBS with increased scale, more diverse assets, a major studio, while it would bring many of those same benefits to Viacom," Moody's Senior Vice President Neil Begley said in a note. "The most important [benefit] would be to put a surer footing beneath Viacom while it continues to turn around its media networks and Paramount."

However, Marci Ryvicker, a media analyst with Wells Fargo Securities, was skeptical.

"CBS-Viacom? Um, no thanks," Ryvicker wrote in a research note last weekend. "Unfortunately, we are more afraid of the longer term value destruction — particularly at CBS, which we have historically favored given its clean portfolio of MUST HAVE content."

CBS cautioned that a merger with Viacom was not a given.