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CBS, Viacom Move Toward Merger Talks as Boards Begin to Evaluate Possible Deal

CBS Corp. and Viacom have taken the first steps toward negotiating a merger as both companies have established special board committees to evaluate the possibility of a deal.

CBS said Thursday its board has assembled a committee of independent directors to “evaluate a potential combination with Viacom Inc.” Viacom said it has “retained independent legal counsel and is retaining independent financial advisors in connection with this evaluation.”

The news came after a regularly scheduled CBS board meeting was held Thursday afternoon.

“There can be no assurance that this process will result in a transaction or on what terms any transaction may occur. Neither CBS nor the committee intends to comment further, until the process is completed,” CBS said in a statement. Viacom’s board issued the same statement.

National Amusements, the parent company of CBS and Viacom, endorsed the moves with a statement of its own. National Amusements president Shari Redstone, who is vice chairman of CBS and Viacom, has urged the companies to consider a reunion, given the pressure in the media landscape by M&A among its traditional rivals — Disney’s acquisition of most of 21st Century Fox and AT&T’s effort to buy up Time Warner — and the entry into the content arena by digital and tech behemoths with extremely deep pockets.

“National Amusements supports the processes announced by CBS and Viacom to evaluate a combination of the two companies, which we believe has the potential to drive significant, long-term shareholder value. National Amusements does not currently intend to make any further comments regarding the process,” the company said.

The statements mark the latest sign that the reunion of the two companies is in the offing. There are still big hurdles to clear in terms of valuation of a deal, given the systemic concerns around the diminishing value of Viacom lower-profile U.S. cable networks. But there is also an understanding that the media landscape is changing fast and the potential for the two sides to work together on international growth initiatives provides rationale for a reunion. Viacom’s share price has also tumbled further during the past year, making a deal more attractive on a financial basis for CBS shareholders. As of Thursday, Viacom had a market cap of $13.6 billion, with shares closing at $33.21. CBS is valued at $22.5 billion, with shares closing at $58.93.

There’s speculation that the deal would be structured as an all-stock transaction with CBS acquiring Viacom. Share prices for both companies were up in after-hours trading following the board announcements.

CBS and Viacom were first brought together in 2000 by Sumner Redstone, now chairman emeritus of both firms. The two were split up again in January 2006 out of Sumner Redstone’s frustration with a sagging stock price.

During the past 14 months under CEO Bob Bakish, however, Viacom has taken big steps to channel most of its programming resources into six flagship cable brands — Nickelodeon, MTV, VH1, BET, Comedy Central, and Paramount Network (the rebranded Spike TV that debuted last week). Undoubtedly, it is only a matter of time before Viacom begins to shutter some of its lesser channels which are already losing distribution as MVPDs take a harder line in dealmaking and consumers embrace skinnier, cheaper bundles. CBS Corp. chief Leslie Moonves has been vocal to investors about the importance of CBS focusing on a few must-have channels in MVPD negotiations rather than having to fight for carriage of lesser outlets.

A deal between CBS and Viacom would also remove a hurdle to future M&A activity. It’s understood that the Redstones had previously balked at dealmaking opportunities involving CBS Corp. unless Viacom was also in the mix. CBS is known to have had merger discussions with Verizon in recent months.

(Pictured: CBS’ Leslie Moonves, Viacom’s Bob Bakish)

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