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Viacom, CBS Scrap Talks on Recombining After Redstones Withdraw Support

National Amusements, the controlling shareholder of both CBS and Viacom, has instructed the two companies to scrap deliberations that could have led to a merger of the two large media conglomerates.

“Based on our assessments of the strengths, progress and future prospects of both companies, we are requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward,” said Sumner and Shari Redstone, who control the movie-exhibition chain that holds majority investments in both companies, in a letter sent Monday.

The maneuver represents an abrupt turnaround by the Redstone family, which has steadily prodded both companies to consider joining anew. The elder Redstone had merged CBS with Viacom in 2000, only to pull them apart six years later. In September, National Amusements formally requested that the boards of both companies consider the possibility of a re-merger on an all-stock basis.

In November, Shari Redstone made a case for the two companies to return to the altar. Speaking at a conference organized by The New York Times, she suggested scale, or the ability to reach audiences across a variety of media venues, had become more important to both consumers and advertisers. In an era of mergers between Comcast and NBCUniversal, Charter Communications and Time Warner Cable, and AT&T and DirecTV, she argued, CBS and Viacom might have more leverage as as distribution companies gained more sway.

She even hinted that she was not in favor of the decision to break up the companies approximately a decade ago – and  suggested she might have supported a potential tie-up between CBS and Time Warner, a prospect rumored to have been discussed in the recent past.

Meanwhile, top executives at both CBS and Viacom have, in recent comments to investors, downplayed discussions of a merger in favor of standalone strategies.

The Redstones said in their letter that they had grown more confident in Viacom under the leadership of recently-installed chief Bob Bakish, the former head of the company’s international operations. Bakish has in recent weeks articulated a strategy of turning around ratings declines at MTV and Comedy Central, a stronger focus on overseas businesses, and an improved pipeline at the company’s Paramount movie studio.

“We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed,” the Redstones said. “At the same time, CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis.”

The move is likely to renew investor scrutiny on Viacom, which has suffered greatly as younger viewers migrate away from linear TV and as Paramount suffers from a lackluster pipeline of movie releases.

CBS, neanwhile, has proven more nimble. The company has launched new digital businesses, including a broadband-delivered CBS News product and subscription-based on-demand services for both the CBS broadcast network and the Showtime pay-cable service.

Here is the letter National Amusements sent to the boards of Viacom and CBS, signed by Sumner Redstone and Shari Redstone:

Members of the Boards:

This past September, we asked the boards of CBS and Viacom to consider a potential combination — we believed that given the industry landscape. a merger might redound to the benefit of both companies and their shareholders. On a parallel track, we urged both companies to move forward with steps to strengthen their operations on a stand-alone basis.

Over the past few months. after careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge thc companies. Following the management changes that the Viacom Board put in place, we have been very impressed with the forward-looking thinking and strategic plan being pursued under Bob Bakish’s leadership. We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed. At the same time, CBS continues to perform exceptionally well under Les Moonves and wc have every reason to believe that momentum will continue on a stand-alone basis.

Based on our assessment of the strengths, progress, and future prospects of both companies, we are requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward.

We are incredibly proud of the talented and hard-working individuals who comprise both companies, and who are truly second to none in the industry. We would like to thank the boards and special committees of both Viacom and CBS for their consideration of our request.

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