Viacom, CBS Are Better Off Apart, Says Rosenblatt Securities

The on-again, off-again merger talks between Viacom, Inc. VIAB and CBS Corporation CBS have resumed, according to a report from TheWrap last week.

The Analyst

Rosenblatt Securities' Alan Gould maintains a Sell rating on Viacom's stock with no assigned price target and a Buy rating on CBS' stock with a $78 price target.

The Thesis

National Amusements, the Redstone family's private company that holds a controlling stake of both CBS and Viacom, explored a potential combination of the two companies in the past and reports of renewed discussions surfaced again last week, Gould said in a Tuesday note. (See the analyst's track record here.) 

But even if the two companies do reunite, it is unlikely to maximize value, as both are too small in the "consolidating media environment," the analyst said. 

The combination of Viacom and CBS is unlikely to create any notable synergies, and the two companies are not "optimal partners" for each other, Gould said. In the analyst's view, CBS would be better off partnering with a company like Verizon Communications Inc. VZ, which is likely seeking programming expertise with a strong sports position. 

Viacom is mostly a network company and would fit better with another global network company like Sony Corp (ADR) SNE, which has an interest in expansion, Gould said. 

"If there isn't much synergy, then the negotiations become more of a zero-sum game," the analyst said. "The only way this becomes a good deal for CBS shareholders is if it becomes a bad deal for VIA shareholders."

Price Action

Shares of Viacom lost more than 4 percent early Tuesday morning while CBS' stock gained more than 1 percent.

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