NEW YORK (Reuters Breakingviews) - The Redstones do like to keep everyone on their toes. The family that controls media firms CBS and Viacom on Monday nixed their proposal for the companies to merge. The Murdochs' bid for Sky and AT&T's deal for Time Warner have ignited the industry's animal spirits. That has raised the prospect that reuniting the two media firms would rob CBS of a better offer.
It was only three months ago that National Amusements - the investment vehicle for Sumner Redstone and his daughter Shari - suggested that CBS and Viacom should consider getting back together again after 10 years apart.
Of the two, Viacom is on far shakier ground after the MTV operator stumbled with a series of buybacks and a creative dry spell. Conversely, broadcaster CBS has flourished under Chief Executive Leslie Moonves. It's now, at $30 billion, worth twice as much as Viacom and trades at about 14 times next year's estimated earnings, compared with around 10 times the next 12 month forecast for its erstwhile stable mate, according to Thomson Reuters estimates.
Rejoining the two would be a land mine: CBS would risk angering shareholders if it offered too much of a premium for the lagging Viacom, while the latter's investors would be upset if they didn't get much more than its market value.
There's another wrinkle, too: industry merger activity has gone on a tear since the Redstones made their CBS-Viacom pitch in September. AT&T's surprise $85 billion October offer for Time Warner came with a rich 36 percent premium. And on Friday Twenty-First Century Fox suggested paying two-fifths more than the current share price for 61 percent it does not already own of European pay-TV operator Sky.
Now free to pursue their separate paths, the Redstones' two companies are likely to look for other ways to scale up. CBS could attract rivals hoping to replicate AT&T's plan of combining content with distribution. Verizon, the $209 billion telecom giant, would be one contender. Viacom, meanwhile, may fit with other cable networks, including those currently being assembled by Liberty Media's John Malone. With so much in play, it's no wonder the Redstones may be taking their own media M&A to a new channel.
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