Wells Fargo On A CBS-Viacom Reunion: 'We Don't Like It'

Merger talks between CBS Corporation CBS and Viacom, Inc. VIAB are underway according to a Reuters report last week that cited "sources familiar with the situation." But this is not a welcome development for investors, according to Wells Fargo. 

The Analyst

Wells Fargo's Marci Ryvicker downgraded CBS' stock rating from Outperform to Market Perform with a price target slashed from $70 to $63. The analyst maintains a Market Perform rating on Viacom's stock with an unchanged $32 price target.

The Thesis

Simply put, a potential re-merger of CBS and Viacom isn't something investors should like, Ryvicker said in the downgrade note. (See the analyst's track record here.)

A deal is unlikely to create large enough scale, as it will merely combine "two completely different companies together just to get bigger," Ryvicker said. 

While a deal could be accretive to CBS' earnings per share in 2019, the longer-term outcome of a merger would be negative, the analyst said.

"Unfortunately, we are more afraid of the longer-term value destruction — particularly at CBS, which we have historically favored given its clean portfolio of MUST HAVE content," Ryvicker said. 

It remains unclear who would control a combined CBS and Viacom entity, the analyst said. CBS CEO Les Moonves isn't necessarily guaranteed the CEO title of the combined entity, and this fact alone would result in a move lower in CBS' stock of at least 10 percent, according to Wells Fargo. 

"To be frank, we don't like it," Ryvicker said. "To us, bigger in and of itself is not necessarily better."

Price Action

CBS shares were down 1.78 percent and Viacom shares were down 0.35 percent at the time of publication. 

Related Links:

Viacom, CBS Are Better Off Apart, Says Rosenblatt Securities

Viacom Left Behind In Fundamental Media Shift, Macquarie Says

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