CBS, Viacom Again Explore Deal to Recombine

Ms. Redstone believes both companies need greater scale to better compete against bigger rivals, people familiar with her thinking say. The new push comes as

AT&T
Inc.

tries to acquire

Time Warner
Inc.

and

Walt Disney
Co.

has a pending deal to purchase the majority of

21st Century Fox
’s

entertainment assets.

CBS Chief Executive

Leslie Moonves

has previously resisted attempts to merge with Viacom and people close to him say he is wary of the combination.

In a statement, National Amusements said it supports the moves by CBS and Viacom to explore the deal, “which we believe has the potential to drive significant, long-term shareholder value.”

CBS and Viacom said in statements they wouldn’t comment further on the matter.

Ms. Redstone took pole position in the family empire in 2016 after a power struggle in which Viacom’s earlier management team was ousted.

Now she faces the challenge of setting up both companies for the future, especially Viacom, owner of more than two dozen cable channels including MTV, Nickelodeon and Comedy Central and the Paramount Pictures studio. Viacom was especially hard hit in recent years as young viewers migrated away from its networks.

Merging with CBS is a tempting solution: It would help shore up Viacom’s balance sheet and combine its channels with a valuable portfolio that includes prime-time CBS programming, sports content such as NFL football and the premium cable channel Showtime.

Ms. Redstone reached out to with Mr. Moonves last month to make the case for restarting merger talks, people familiar with the situation said. Ms. Redstone also began pressing for new blood on CBS’s board, the people said.

CBS isn’t opposed to growing, but it isn’t yet convinced that Viacom’s assets are the best path to scale, a person familiar with Mr. Moonves’s thinking said.

Viacom Chief Executive Robert Bakish, meanwhile, has been attempting a turnaround there. When Mr. Bakish was named chief executive just over a year ago, the company was losing revenue, its debt was teetering on junk status, its channels were losing audience and its Paramount studio had just lost nearly half a billion dollars in a single year.

He has tried to right the ship by improving relations with Viacom’s distribution partners, slimming the company’s strategic focus to six flagship cable channel brands, starting a digital content studio and improving collaboration between divisions.

Under Mr. Bakish, Viacom has maintained its cable channel-carriage agreements but it has been forced in some cases to accept lower fees, hurting the long-term outlook for its distribution revenue.

Analysts think Viacom would have greater leverage to negotiate with distributors if it were part of CBS. MoffettNathanson analyst Michael Nathanson said a deal also could offer “substantial cost synergies.”

Others counter that in this case bigger may not be better. “We do not view ‘scale’ as an all-encompassing positive—especially when ‘scale’ just means slapping two completely different companies together just to get bigger,” said Wells Fargo analyst Marci Ryvicker in a recent note.

Both Viacom and CBS had fallen short of analysts’ initial expectations for profitability in 2017—although Viacom fared much worse than CBS—and the pressure to consolidate has only increased, people close to the situation say.

Ms. Redstone believes Mr. Bakish would make sense as Mr. Moonves’s eventual successor at a merged company, the people familiar with the matter said.

Inside CBS, Chief Operating Officer Joe Ianniello is seen as Mr. Moonves’s successor and has a clause in his contract allowing him to leave at the end of this year if he isn’t named president or if someone else is named president or chief executive, according to a regulatory filing.

Mr. Moonves, who is well-regarded by Wall Street, has a few cards to play against Ms. Redstone if he ultimately isn’t convinced that a merger is the right move. According to his contract, he can leave for “good reason” if a non-executive chairman is appointed, or if the board “ceases to consist of ‘original independent directors’ and ‘qualified replacement directors.’ ”

Ms. Ryvicker said in her report that a departure by Mr. Moonves would weigh on CBS shares.

Write to Joe Flint at joe.flint@wsj.com and Keach Hagey at keach.hagey@wsj.com