CBS-Viacom remerger has big upsides for both companies, analysts say

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For the second time in less than two years, CBS and Viacom are exploring a reunion after splitting up in 2006, and many analysts are seeing positives coming out of a potential deal.

“Potential of a recombination of CBS (Baa2) and Viacom (Baa3) would provide CBS with increased scale, more diverse assets, a major studio, while it would bring many of those same benefits to Viacom, the most important would be to put a surer footing beneath Viacom while it continues to turn around its media networks and Paramount,” said Moody Senior Vice President Neil Begley in a statement.

UBS analyst John Hodulik estimated that a deal between CBS and Viacom would be 15% accretive to earnings per share and free cash flow if it’s an at-market deal with around $500 million in cost synergies. He said estimated compound annual growth rates for revenues and EBITDA would both be slightly lower than what standalone CBS could achieve.

“Given these financials and what we believe to be the most likely inputs, we expect a transaction to be a positive development for both sets of shareholders in the near term,” wrote Hodulik in a research note.

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BTIG analyst Rich Greenfield noted that after CBS lost NFL Thursday Night Football to Fox earlier this week, the network is now at greater risk of not achieving its retrans/reverse revenues goals while also seeing erosion of its ad revenue and negotiating leverage with TV providers.

“CBS needs far greater scale and a recombination with Viacom is the most logical first step, albeit only a first step with several follow-on strategic moves needed (acquisitions or merger with an even larger entity),” wrote Greenfield in a research note.

According to the Wall Street Journal, Shari Redstone from National Amusements, which holds controlling interests in both CBS and Viacom, believes more scale is needed as well. The belief has been rekindled by the rapid pace of media consolidation throughout 2017, including AT&T’s $85 billion deal for Time Warner and Disney’s $52.4 billion deal for Fox’s entertainment assets.

“National Amusements supports the processes announced by CBS and Viacom to evaluate a combination of the two companies, which we believe has the potential to drive significant, long-term shareholder value,” the company said in a statement. “National Amusements does not currently intend to make any further comments regarding the process.”