Brean Sees CBS, Viacom Merger 'Still Quite Possible'

A merger between CBS Corporation CBS and Viacom, Inc. VIAB is “still quite possible” and a recombination of the two entities would likely be “structured with a premium to the CBS shareholders,” Brean Capital’s Alan Gould said in a report. He maintained a Buy rating on CBS with a $65 price target.

“CBS is extraordinarily well positioned with predictable retrans/reverse comp driving growth and only modest programming expense increases as its key sports contracts are locked in,” Gould wrote. He added that while shares of Viacom [rated Buy] were already discounting the challenges being faced by the company, shares of CBS were largely discounting a recombination with Viacom.

Merger Likely

Gould mentioned that a merger between Viacom and CBS is still possible. He added, “Our scenario model now incorporates the structure of Viacom buying CBS, which allows for a greater premium to the CBS shareholders, as well as CBS buying Viacom.”

The merger may be the preferred solution for controlling shareholder National Amusements Inc to maximize the value of its combined stake in both companies, “particularly given the reports that monetizing a portion of Paramount is off the table,” the analyst commented.

The Q3 dividend has not yet been announced. While Tom Dooley is interim CEO only through September 30, Viacom’s Board may extend the term or make him permanent CEO.

“Clearly a deal will not occur without the approval of Les Moonves and the CBS Board, but if the controlling shareholder of both companies wants the deal and VIA makes an attractive enough offer, then we assume a deal can get done,” Gould added.

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