RBC: Renewed CBS Merger Possibility Brings Viacom Upgrade

The chances for a Viacom Inc. VIAB merger with CBS Corporation CBS now look pretty good, accorindg to RBC Capital Markets .

The Analyst

RBC’s Steven Cahall upgraded Viacom from Sector Perform to Outperform and raised the price target from $31 to $36.

The Thesis

Viacom’s March deal with AT&T Inc. T’s DirectTV over whether Viacom channels would remain part of the satellite provider’s lineup was less contentious than anticipated and, in Cahall’s view, paves the way toward merger talks with CBS.

RBC sees a more than 30-percent implied upside for Viacom on the CBS merger possibility and is advising investors to own both. A better Viacom and a likely deal equals a rise in Viacom stock, Cahall says.

Cahall also cited a New York Post article from late March that said Viacom-CBS merger talks were back on after the DirectTV deal, which had been a “major hurdle.”

The fact that CBS hasn’t named a new CEO to replace Les Moonves, who stepped down last year, implies higher likelihood of merger talks as well.

“With DirecTV consummated and big distributors likely now at harmonious rates and escalators, we think future risk is lessened, which should help Viacom's modest multiple expand,” Cahall wrote in the note.