Viacom, AT&T negotiations weigh on possible CBS tie-up: sources

(Reuters) – Viacom Inc’s bitter contract renewal talks with AT&T Inc’s DirecTV that would see the blackout of MTV, Nickelodeon and Comedy Central by midnight Friday are weighing on a possible tie-up of CBS and Viacom, sources aware of the discussions stated.

FILE PHOTO: The Viacom workplace is seen in Hollywood, Los Angeles, California, April 24, 2018. REUTERS/Lucy Nicholson

Although the boards of CBS and Viacom haven’t mentioned or determined on pursuing a merger, these sources say they’re finding out AT&T’s affect on Viacom and the way it impacts the corporate’s motivation to pursue a CBS merger. Viacom must resolve the AT&T contract earlier than contemplating every other strategic strikes together with mergers and acquisitions, sources stated.

Both corporations are managed by the Redstone household’s National Amusements Inc, which pushed for a merger final yr however backed off as CBS explores different choices earlier than deciding on one other run at Viacom.

Viacom would take a considerable monetary hit with out an AT&T deal. AT&T is Viacom’s largest distributor, representing 24.5 million complete video subscribers, and was chargeable for about 15 % of Viacom’s 2018 income. At stake are about $2 billion yearly in charges and promoting, that are seen declining in any new deal, based on Wall Street estimates.

The 2017 Viacom and Charter Communications Inc renewal resulted in a 15 % price lower. An identical consequence with AT&T may result in a $156 million drop in annual affiliate charges paid by AT&T to Viacom, though some analysts have estimated an approximate 10 % lower this time.

Viacom and AT&T declined to remark. Negotiations continued as of Friday afternoon, sources stated.

Failure to achieve a deal is seen emboldening CBS and Viacom’s controlling shareholder’s place to place the businesses collectively to provide them higher leverage in future distribution contract talks.

“Viacom’s clear need for greater negotiating leverage after being dropped by AT&T might be the final factor necessary to drive the long-speculated CBS-Viacom merger given the common control of both companies by the Redstone-controlled National Amusements,” Credit Suisse analyst Doug Mitchelson stated in a analysis word this week.

If AT&T and Viacom stroll away from the desk, the No. 2 U.S. telecoms firm’s place is also weakened, particularly if it faces a mixed CBS and Viacom by the top of June, when CBS’s contract with AT&T expires.

Dropping the CBS broadcast community and NFL video games could be disastrous to AT&T, and so they could find yourself paying extra for Viacom channels by means of CBS, analysts have stated.

Losing Viacom may even weaken AT&T’s leverage because it faces Walt Disney Co later this yr, based on Mitchelson.

Shares of Viacom closed down 2.46 % at $25.34 on Friday whereas AT&T shares closed flat at $31.07.

Reporting by Kenneth Li, Helen Coster and Liana B. Baker; Editing by Leslie Adler

Our Standards:The Thomson Reuters Trust Principles.

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