Bank Of America Revisits CBS-Viacom Merger Reports

The on-again-off-again reports of CBS Corporation CBS acquiring its sister company Viacom, Inc. VIAB resumed this week with a higher chance of a merger completing compared to prior attempts, according to Bank of America.

The Analyst

Bank of America's Jessica Reif Ehrlich maintains a Buy rating on Viacom with a $39 price target. The analyst also maintains a Neutral rating on CBS with a $58 price target.

The Thesis

CBS's reported interest in acquiring Viacom goes back at least four years and recent reports of renewed talks is "unsurprising" given National Amusements' controlled interest in both companies, Reif Ehrlich wrote in a note. This time around a merger would be easier to close given leadership and board changes at CBS and recent "positive fundamental strides" at Viacom.

The merger also boils down to a "cheap company buying a cheaper company" with CBS's stock trading at a P/E multiple of 8.4 times on 2020 estimates and Viacom's stock at 7.3 times. If a deal occurs at a 15% premium to Viacom's stock, then CBS could benefit from a low-double digit EPS accretion in 2021.

A merger would also generate $500 million in annualized cost savings and additional synergies through cross-selling ad platforms, bundling content sales and making uses of Viacom's international exposure to lift CBS' international distribution, among others, the analyst wrote.

Price Action

Shares of CBS were trading higher by 0.29% Tuesday at $53.51 while Viacom's shares were flat.

Related Links:

Morgan Stanley: CBS Stock Appears Too Cheap

Guggenheim Raises CBS Price Target On Multi-Year Growth Outlook