NEW YORK (Reuters) - Media mogul Sumner Redstone and his daughter Shari called off their failed effort to merge CBS Corp (CBS.N) and Viacom Inc (VIAB.O) on Monday, sending shares of Viacom - widely viewed as the weaker company - down almost 8 percent.
The collapse of the plan, which never got beyond initial talks, raises questions about the future of both Redstone-controlled companies just as scale becomes more important in a media industry set to be reshaped by AT&T's (T.N) deal to buy Time Warner Inc (TWX.N).
The end of negotiations was not a complete surprise. Les Moonves, the longtime chief executive of CBS, said last week talks were still stuck in the early stages, more than two months after the Redstones asked the boards of both companies to explore a tie-up.
The two sides never entered talks on pricing and were far apart on Viacom's value, according to two sources familiar with the situation.
Shares of Viacom were down 7.9 percent at $39.10 in afternoon trading.
CBS shares initially rose 1.8 percent, touching a nearly 2-1/2 year high, after CNBC cited a New York Post report that Verizon Communications Inc (VZ.N) was interested in buying the company. Verizon declined to comment.
In afternoon trading, CBS shares were down 0.4 percent at $62.12.
National Amusements, the privately held movie company through which Shari Redstone and her 93-year-old father control 80 percent of the voting shares of CBS and Viacom, said in a letter they stopped pushing for a deal on the expectation of a turnaround at Viacom under new leadership.
Viacom named Bob Bakish, head of its international business, acting chief executive officer at the end of October, and made that position permanent on Monday afternoon as it announced the end of merger explorations.
Viacom, which owns Nickelodeon, Comedy Central and MTV, has been struggling to turn around declining ad revenue and ratings while CBS is home to top-rated shows such "The Big Bang Theory" and "Thursday Night Football."
Mario Gabelli, whose firm is the second-largest owner of voting shares of Viacom and CBS, said he was not disappointed with the failure of merger plans and that he still believes that ultimately the two might merge.
“Viacom needs to be fixed,” he said.
One sticking point in negotiations was that CBS's Moonves wanted autonomy over the merged company.
National Amusements was willing to compromise on this issue, but in the end decided to let Bakish retain control of Viacom, according to the sources, who wished to remain anonymous because they were not authorized to speak publicly.
Bakish already has started taking action after just a few weeks as acting CEO. Last month, the company announced it was buying Argentine broadcaster Television Federal SA from telecom carrier Telefonica SA for $345 million.
He is also looking to improve relations with affiliates and is working on a plan to turn around MTV, a top priority for him, he told Reuters in November. Last week, he replaced Viacom's head of distribution, Denise Denson, a longtime executive who worked closely with former CEO Philippe Dauman.
In September, National Amusements called on Viacom and CBS to consider recombining, 10 years after Viacom was spun off from CBS. Shari Redstone had been in favour of recombining the two under Moonves, sources have previously told Reuters.
Industry speculation that the two might rejoin increased this year after the Redstones prevailed in a power struggle that resulted in Dauman's departure.
A Viacom spokesman confirmed it had received the letter from National Amusements, which was first reported by CNBC. A CBS spokesman declined to comment.
National Amusement's letter also said: "CBS continues to perform exceptionally well under Les Moonves."
Relations between Moonves and Shari Redstone continue to be good, the source said. This week, the two plan to go to Boston for the premiere of the film "Patriots Day," produced by CBS Films.
Writing by Anna Driver; Editing by Nick Zieminski and Bill Rigby