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Viacom Shares Spike on DirecTV Deal, Renewed CBS Merger Chatter

Viacom shares soared 10% on Tuesday after the company reaffirmed financial guidance for its media networks wing on the heels of sealing a hard-fought carriage renewal agreement with AT&T’s DirecTV.

The stock gain underscored the importance of maintaining its presence on DirecTV and other AT&T channel bundles. Viacom on Tuesday reaffirmed its guidance of affiliate fee growth in the low single digits for the fiscal year 2019. Also putting some wind at Viacom’s sale is renewed speculation about movement on a CBS-Viacom reunion now that the AT&T carriage renewal is locked.

The reaffirmation of financial guidance was a signal to Wall Street that the DirecTV deal reached in the early hours of Monday did not amount to a rate-cutting bloodbath, as some feared because of AT&T’s own financial need to hammer down on programming costs for its MVPD platforms. Viacom acknowledged the new deal was a step down from the previous contract. But the thumbs up on growth guidance offered in February indicates that the DirecTV deal is in line with the terms of Viacom’s recent renewals with large MVPDs including Comcast, Charter Communications and Altice USA.

DirecTV, U-verse and the DirecTV Now and Watch TV streaming platforms make AT&T the nation’s largest traditional MVPD, which also has the benefit of national reach unlike the regionally focused cable operators.

Viacom shares were up as much as 10% in early trading. The stock was up 7.6% at the close of trading to $28.33. Tuesday’s leap was welcome for Viacom after the threat of a DirecTV blackout spurred a 5% drop in the stock price on March 20.

Meanwhile, there’s renewed focus on Wall Street and in Hollywood on the fate of Viacom and CBS, the two halves of the Redstone media empire. The key MVPD pacts allow the company to project out its most vital revenue source — predictable affiliate fees — for the near term, which will be important in valuing the company.

Sources close to the situation at CBS downplayed the suggestion that formal reunion discussions for the company are just around the corner. The CBS board is in the midst of a CEO search — which will not be concluded by the end of this quarter as had been indicated earlier — and is considering a host of M&A options for the Eye, not just Viacom.

Yet there is no denying the sense of inevitability surrounding a consolidation of the two companies that were joined from 2000 through 2005, when controlling shareholder split them in to separate entities out of frustration with a lagging stock price.

Michael Nathanson, a longtime Viacom watcher and partner in MoffettNathanson, said the movement of CBS and Viacom shares have been closely linked for the past few months, a sign the market sees a deal on the horizon. And the apparent lack of M&A matchmaking surrounding CBS in the wake of Leslie Moonves’ ouster as chairman-CEO last September is another telling sign. CBS shares were up 4% at the close of trading Tuesday to $47.32.

“Now that the Viacom-AT&T negotiation is in the rearview mirror, we would expect that the boards of Viacom and CBS will renew conversations about merging these two companies. As we have long noted, it made zero sense to separate these companies in two and it makes zero sense, given the scale of their rivals, for a controlling shareholder to ignore the benefits of putting CBS and Viacom back together again,” Nathanson wrote on Monday. “Either by design or fate, CBS’s equity has struggled post-Les Moonves as the board of directors has failed to name a full-time CEO and appears to have NOT put itself into play for active M&A discussions. In essence, the stock is trading in nearly linked step with Viacom, which is a signal that most investors believe that the merger is a foregone conclusion.”

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