Analyst Downgrades CBS Over Viacom Merger Talk

Ryvicker dismisses value of scale in Redstone combo
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Amid reports the family of Sumner Redstone, which controls CBS and Viacom, is again pushing to combine the media companies, analyst Marci Ryvicker of Wells Fargo is downgrading CBS’s stock from “outperform” to “market perform.”

On Sunday, in a report entitled “CBS-VIAB? No Thank You,” Ryvicker said she doesn’t like the merging these two companies because she doesn’t see scale as something that’s always a good thing, “especially when ‘scale’ just means slapping two completely different companies together just to get bigger,” she added.

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While there is some value to be created in the combination, “we are more afraid of the longer-term value destruction—particularly at CBS,” she said.

Last week, there were reports that CBS CEO Les Moonves and Viacom CEO had gotten together to discuss a possible combination. And a merger is expected to be discussed when CBS and Viacom have separate board meetings in the next few weeks. Last year, Shari Redstone, vice chairman of both companies, asked their boards to consider a combination, but the idea was dropped.

Analysts including Ryvicker have been sweet on CBS because it was virtually a pure-play broadcaster with must have content.

Ryvicker said outside of savings at the corporate level, she doesn’t see much synergy in putting the two companies together. Each has its own completely different content strategy, she said.

Despite the turnaround efforts at Viacom’s cable networks, adding them to CBS might diminish the leverage CBS has in negotiating retransmission consent rates, which are now the highest among its peers. “We calculate at least $385 million of retrans revenue at risk, offsetting synergies, she said.

On top of that “we worry a little that Les might not remain at the [combined] company,” Ryvicker said. She estimates that without Moonves, CBS stock would be 10% lower. At CBS’s current market cap of $24 billion, that makes Moonves worth $2.4 billion.

“While there is a chance that another attempt at a CBS-VIAB combo does NOT occur, the risk is too high for us to recommend either stock especially as we continue to see significant declines in sports and non-sports viewership,” she said.

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