Viacom shares took big dive in trading Monday after parent company National Amusements tabled its effort to push the companies to merge.
The decision by National Amusements to withdraw its support for the re-merger of the two sides of its media empire came after weeks of consideration by special committees assembled by the boards of Viacom and CBS. But internally it was clear among the executives at both companies that there was no zeal for the reunion, as both companies have operated separately for a decade.
Wall Street’s reaction on Monday reflected Viacom’s larger image problem. The company is struggling with declining advertising and affiliate revenue at its core cable properties and huge losses racked up by its Paramount Pictures unit. A year of instability in the executive suite hasn’t helped the situation.
In October, Bob Bakish became the company’s third CEO this year, reflecting the fallout from the months-long legal battle between former CEO Philippe Dauman and Sumner Redstone, who controls CBS and Viacom through his National Amusements holding company.
During this period, Redstone’s daughter, Shari Redstone, has emerged as the force driving the macro-strategy for the Redstone empire. Shari Redstone, who is vice chair of CBS and Viacom, initially pushed the idea of the re-merger to put CBS Corp. CEO Leslie Moonves and his successful management team in charge of refurbishing Viacom’s TV assets and studio.
But Moonves wasn’t eager to take on Viacom’s problems. Adding Viacom’s cable channels to the fold would have hampered CBS’ greatest leverage point in the TV eco-system: the fact that it has two must-have channels, CBS and Showtime, in negotiations with MVPDs. If CBS had to be responsible for securing distribution for Viacom’s collection of 24 cable channels, that leverage would be considerably diluted.
Another big hurdle to the proposed all-stock merger was purely financial. CBS’ stock has been on a run the past few weeks following its strong third quarter earnings report last month, while Viacom shares have been weighed down by a year of bad news.
On Monday, Viacom shares were hovering around $35-$36, after closing Friday at $38.62. CBS was around $60.50, after closing Friday at $62.56.