With Viacom Reunion Tabled, CBS Surrounded by M&A Rumors Again

CBS Corp. didn’t get remarried to Viacom after all, but the company is still viewed in media and Wall Street circles as a divorcee on the prowl for a new mate.

Rumors about CBS being in the hunt for acquisitions, or being the target of a larger suitor, have surfaced during the past week since merger discussions between CBS and Viacom were scrapped Dec. 12 at the behest of National Amusements, the Sumner and Shari Redstone-controlled parent company of both congloms. CBS’ strong fundamentals and momentum make the Eye a sexier target than its corporate cousin, which was weighed down by management turmoil and operating weaknesses at its core divisions, Paramount Pictures and its cable assets.

Verizon, Sony Pictures Entertainment, AMC Networks and Lionsgate are among the companies that have been mentioned in varying scenarios as potential contenders for deals with CBS. Adding fuel to the fire is the fact that CBS is due to receive a cash windfall later this year when it completes the spinoff of its CBS Radio division.

The potential for a re-combination with Viacom was seen as a drag on CBS’ stock price for a good portion of this year. As it became clear the deal was not in the cards, CBS shares have been on a run, hitting its highest level in nearly three years this month. The stock closed Monday at $64.36, essentially flat from Friday.

Sources familiar with CBS’ thinking maintain that there are no concrete discussions happening at this moment. But with heat on the Street and solid earnings growth forecast for next year, there’s little doubt that CBS will be a player in what is expected to be a pitched environment for horse trading of media and entertainment assets. AT&T’s pending $85.4 billion bid for Time Warner is seen as the first shot in an arms race for scale and reach, particularly as traditional media players warily eye the growing clout of tech giants including Facebook, Google, Apple and Amazon.

While CBS may be in the fray, there’s no certainty of a transformative deal arising. CBS Corp. chief Leslie Moonves has repeatedly stated that he feels no pressure to grow via a major acquisition. Indeed, the Viacom talks were complicated by the fact that CBS’ nimble size at present gives the company maximum leverage with MVPDs in setting affiliation deals for CBS and Showtime — a benefit that would have been diluted if Viacom’s 24 cablers were added to CBS’ holdings.

“We have said this and we truly believe it, there is nothing we want; there is nothing that we lack,” Moonves said Dec. 5 at the UBS Global Media and Communications conference. “Will we ever be of a scale of a Disney or an Apple? I doubt it. And we are able to play the game just fine as long as we keep doing what we do, which is produce great content for CBS, for Showtime, for The CW, for whatever the platform is. We are very strong; people need us and we are very happy with where we are right now.”

The rumor that CBS was a target for Verizon has surfaced on and off in recent months, gaining steam after rival AT&T reached its deal with Time Warner. The apparent shakiness of Verizon’s pending buyout of Yahoo — given Yahoo’s corporate woes involving data breaches of its millions of users — has also spurred speculation that the telco giant could look elsewhere for expansion opportunities.

However, Verizon CEO Lowell McAdam has been clear in recent comments about his belief that the company does not need a hefty content partner to compete in an increasingly mobile video marketplace. Speaking Dec. 6 at the UBS conference, McAdam pointed to the company’s homegrown “go90” content platform as a good example of where it sees content opportunities for the company.

“We are a bit more bullish on the digital media because the millennials don’t seem to be buying the 300-channel bundles and they seem to be much more mobile and much more Internet oriented,” McAdam said when pressed on whether traditional TV bundles were a priority for Verizon. “If you look at the digital media and the millennials and how they choose to consume their media, it is much more mobile and snack-able and Internet-based and so we like the strategy that we are on.”

The other big unknown for any M&A activity involving CBS is how the Redstones might respond to any overtures to Moonves and Co. The Redstones’ privately held National Amusements controls some 80% of the voting shares in CBS and Viacom, which gives them veto power over corporate actions, although the CBS board has long demonstrated its independence.

In late September, when National Amusements formally asked the boards of CBS and Viacom to consider a re-merger, the letter asserted: “National Amusements is not willing to accept or support (i) any acquisition by a third party of either company or (ii) any transaction that would result in National Amusements surrendering its controlling position in either company or not controlling the combined company.”

Whether that position remains the law of the land for the Redstones should CBS find a compelling opportunity remains to be seen. Reps for National Amusements and CBS declined to comment.

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