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By Keach Hagey, Joe Flint and Joshua Jamerson 

Sumner Redstone and his daughter Shari Redstone ended their effort to merge Viacom Inc. and CBS Corp., a big bet that Viacom can turn around its fortunes on its own in an unforgiving media environment.

In a statement Monday, the Redstone family's holding company National Amusements -- which has nearly 80% voting stakes in both media companies -- said that, after reviewing a tie-up, "we have concluded that this is not the right time to merge the companies."

A marriage would have reunited Viacom, owner of ratings-challenged cable networks like MTV and Comedy Central and of the slumping Paramount Pictures movie studio, with top broadcaster CBS a decade after they were split up.

Neither company had been enthusiastic about a merger, despite the desire of the Redstones to make it happen, and discussions never advanced beyond the early stages, people familiar with the situation say. There were also differences in opinion on valuation, as Viacom wanted a premium that CBS Chief Executive Leslie Moonves wasn't interested in offering, the people said.

A big reason for the reversal in plans, people familiar with the matter say, is Ms. Redstone's faith in Bob Bakish, a nearly two-decade veteran of Viacom who was named acting CEO on Oct. 31. Mr. Bakish, who previously helmed the company's international operations, has impressed Ms. Redstone with presentations suggesting he will restore the creative culture at Viacom. In the letter, the Redstones praised Mr. Bakish's "forward-looking thinking and strategic plan."

The Viacom board, which meets on Monday, is likely to take up the matter of making Mr. Bakish's CEO role permanent, the people familiar with the matter said.

The decision to explore a merger of the firms followed the ascent of Ms. Redstone in the family empire after a year of legal and boardroom drama, and was thought to be at least a partial solution to Viacom's strategic problems. CBS, which is relatively stronger, would have been able to help ensure Viacom's weaker channels aren't dropped by cable-TV distributors and upstart web-TV players, according to people familiar with the rationale for the merger. CBS also could have moved to improve Viacom's content, the thinking went.

In late September, National Amusements sent a letter to the boards of Viacom and CBS urging them to explore whether a merger made sense.

At a New York Times DealBook Conference last month, Ms. Redstone said that a merger made potential sense because "scale is going to matter" in the media industry, though she stressed that both businesses could also succeed on their own.

Now, Viacom will be fending for itself once again. And CBS, despite its relative strength, could also face questions about its strategy. All content companies are charting strategies for a media universe where young people are watching less television, where streaming media is on the rise and where a few giants of content and distribution -- notably Comcast Corp. and AT&T Inc., which has a pending acquisition of Time Warner Inc. -- dominate the scene.

21st Century Fox, for its part, on Friday unveiled a roughly $14 billion bid for total ownership of the U.K.'s Sky PLC, a deal that would give it a European foothold in pay-TV distribution, premium sports content and direct-to-consumer streaming. Fox and Wall Street Journal-owner News Corp. share common ownership.

Shares of Viacom fell 7% in early afternoon trading, while CBS shares were up 1%.

In the statement Monday, National Amusements called for a focus on the companies' "independent paths forward."

Mr. Bakish, Viacom's third CEO since August, wanted an opportunity to try to fix the company rather than merge with CBS. Mr. Bakish and Wade Davis, Viacom's chief financial officer, made a presentation to Mr. Moonves and his advisers last month, outlining a plan for a future performance for Viacom that was more bullish than analysts were projecting, according to people familiar with the matter. Mr. Moonves has been complimentary about Mr. Bakish's plan, the people said.

In his public comments so far, Mr. Bakish has emphasized how lessons from his decade atop Viacom's international division of the company can be applied to the company as a whole -- particularly its focus on six core channels. Viacom, which has some two dozen channels in the U.S., has been the poster child for an industry where media companies offer huge bundles of channels, an approach that is coming under strain as consumers shift to skinnier bundles and direct-to-consumer streaming options.

Viacom has had conversations about the potential need to slim down the number of channels, according to people familiar with the matter, though no decisions have been made.

Mr. Bakish has dispatched Mr. Davis to Paramount to help improve the movie studio's finances, Mr. Bakish told investors at a UBS conference last week. Ms. Redstone feels that she is now getting more insight into what's happening at Paramount under Mr. Bakish's leadership than she has had in a decade, according to a person familiar with the matter.

At CBS, meanwhile, insiders were worried about being saddled with weak Viacom assets.

Ms. Redstone and Mr. Moonves held preliminary, informal talks earlier in the year about a potential merger -- before the companies' boards set up special committees to evaluate a deal. Mr. Moonves wanted assurances that he would have enough control over the merged entity to avoid the fate of former Viacom CEO Philippe Dauman, who was ousted this summer amid a power struggle with the Redstone family, people familiar with the matter said.

Ms. Redstone wasn't willing to give up control, but she was willing to meet Mr. Moonves halfway -- meaning that issues of control weren't the main driver of National Amusements' decision to pull away from exploring a merger.

CBS, which also owns the Showtime premium channel, has repeatedly told investors it would be a strong stand-alone company. It has positioned itself for the rapidly changing digital-media landscape with "CBS All Access," a digital-subscription service that offers CBS shows and that recently added coveted National Football League games.

People familiar with the matter say CBS is open to other potential deals, including acquiring or investing in digital-media firms. CBS is also in the process of spinning off its CBS Radio unit.

Write to Keach Hagey at keach.hagey@wsj.com, Joe Flint at joe.flint@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

December 12, 2016 13:42 ET (18:42 GMT)

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