Abandoned CBS, Viacom merger leaves scale issue lingering

Tue Dec 13, 2016 4:44am EST
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By Liana B. Baker and Jessica Toonkel

(Reuters) - Sumner Redstone's holding company National Amusements Inc's decision to abandon a merger of its prized media assets, CBS Corp and Viacom Inc, leaves them under pressure to buy or partner with peers in an industry where scale matters.

Redstone's daughter Shari, who controls CBS's and Viacom's controlling shareholder National Amusements together with her father, told the New York Times Dealbook conference last month that scale was crucial for both companies, because it would give them greater pricing power in content distribution.

National Amusements, however, does not currently want to sell either company, according to people familiar with the matter who requested anonymity discussing confidential deliberations. The chief executives of CBS and Viacom are also currently not keen on making big acquisitions, because they are focused on executing their operational strategy, these people said.

Nevertheless, the two companies may be forced to consider acquisitions if they come under more competitive pressure, the sources said. They may also turn to partnerships with media companies as an alternative to outright acquisitions, the sources added.

"Should Viacom remain independent, we think it will need a strategic partner to help co-finance a larger and more expensive film slate," Brean Murray analyst Alan Gould said in a research note on Monday.

CBS, Viacom and National Amusements declined to comment.

Pressure on media companies to consolidate has increased in the last two months, as some industry giants have sought to merge with major distributors of their content, in a bid to expand their reach and profitability.

In October, U.S. telecommunications giant AT&T Inc agreed to acquire media conglomerate Time Warner Inc for $85.4 billion, while last week Rupert Murdoch's Twenty-First Century Fox Inc reached a preliminary agreement to acquire the 61 percent of Sky Plc it does not already own, valuing the British broadcaster at $23 billion.   Continued...

A woman exits the Viacom Inc. headquarters in New York April 30, 2013.  REUTERS/Lucas Jackson/File Photo