A potential merger between Viacom Inc. and CBS Inc. is still likely, writes FBR & Co. analysts led by Barton Crockett in a note to clients. But in the interim of a deal, Crockett has downgraded Viacom to market perform from outperform and sees CBS as the principal equity to own. “CBS does not need a merger, as it has a growth story in retransmission, direct over-the-top international licensing, durable ratings and a well-regarded, long-standing CEO in Les Moonves,” Crockett wrote. Viacom on the other hand has been through the ringer. It squashed selling a minority stake in Paramount Pictures, ratings at Viacom-owned networks have failed to instill confidence and the company is under the eye of a untested and temporary CEO in Bob Bakish. “The Redstone family has said it will not consider a bid for Viacom from anyone other than CBS,” Crockett wrote. “We believe [CBS] would not do a deal that required it pay a meaningful premium for Viacom.” Viacom could, however, buy CBS at a premium, Crockett suggests. Viacom shares, down more than 6% in the year to date, were down a little more than 1% on Tuesday and CBS shares fell less than 1%, while enjoying a nearly 25% gain in the year to date. The S&P 500 Index is up more than 6% in the year.
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