Sumner Redstone's holding firm calls for an all-stock deal, saying it is "not willing to accept or support any acquisition" of Viacom or CBS by a third party or not controlling the merged company.

National Amusements, Sumner Redstone's holding company, has made it official, publishing a letter it has sent to Viacom and CBS Corp., in which it urges the two companies to explore a merger. 

In the letter, made public Thursday morning, National Amusements asked the boards of both companies to take the necessary steps, likely to include the formation of independent committees, to consider a possible reunion a decade after the companies separated. 

The company said a combination "might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape.

National Amusements controls 80 percent of the voting shares of both Viacom and CBS and is privately owned by Redstone and his daughter Shari. It made clear that the company would not accept or support "any acquisition by a third party of either company or any transaction that would result in National Amusements surrendering its controlling position" in either company or lead to some other entity controlling the combined company.

A CBS representative said in response: "CBS is in receipt of the letter, and its management and independent directors will take appropriate action to evaluate what is in the best interest of the company and its shareholders."

Viacom also said that its board has received the letter, adding: "The company expects that the Viacom board of directors will form a special committee of independent directors to carefully consider the request from National Amusements and any proposed transaction."

The timing of deal talks wasn't immediately clear. At Viacom, the mid-November departure of interim CEO Tom Dooley could play into the timetable. Meanwhile, CBS will want to ensure enough time to analyze the Viacom business before making any decisions. "I don't know the asset well enough," CBS COO Joseph Ianniello said recently. "It's been over a decade since we were there, so I haven't studied it ... that's what we would assess with these x-number of cable channels: What do the contracts look like, what are the programming commitments?"

Wall Street analysts have said that a recombination would benefit Viacom shareholders as the company has struggled with ratings and advertising sales challenges. Many expect that if a deal can be reached, the merged company would be run by chairman and CEO Leslie Moonves, who is widely seen as one of the most successful industry CEOs.

"We strongly believe that the CBS board, led by chairman and CEO Leslie Moonves, will not agree to a combination that does not provide CBS with full strategic and operating control of existing Viacom businesses," Guggenheim Securities analyst Michael Morris said Wednesday.

Wells Fargo analyst Marci Ryvicker said Wednesday: "We view this as a pretty reasonable thing for National Amusements to do as a CBS-Viacom merger is a possible option — not one that we like at the moment, but the fact that it is being explored is reasonable and not surprising to us." Highlighting that National Amusements is looking to request the recombination option, Ryvicker added that this "means (to us at least) that there is no ''forcing'' a combination, and that CBS/Les Moonves clearly gets a say here."

But analysts have also highlighted that for CBS a deal is a bigger risk, given it has done so well on its own and has had more leverage in network carriage negotiations than Viacom, whose 26 mostly younger-skewing cable networks are seen at risk amid continued pay-TV cord-cutting. Management would have to spend much time and energy on turning around Viacom's business, many say.

Viacom acquired CBS Corp. in 2000, but in 2005 Redstone announced plans for a split that took effect at the start of 2006. Back then, the idea was for both companies' business portfolios to be more focused, in turn allowing their stocks to do better on their own. Viacom was seen as the growth company back then, while CBS was seen as the dividend-paying value play for investors. But under Moonves, CBS shares soon outperformed Viacom's and those of most other peers, and CBS started charging retransmission fees and developing other new revenue streams.

After the split, Viacom was initially led by CEO Tom Freston, but he was soon ousted in favor of Philippe Dauman. Dauman was forced out of his role at the company this summer, with a severance package of $70 million, after losing a legal bid to declare the 93-year-old Redstone mentally incompetent. When interim CEO Tom Dooley said last week that he'd be leaving on Nov. 15, some on Wall Street saw that as a signal that a merger with CBS was on the table.

Mario Gabelli, the billionaire investor who is Viacom's largest shareholder behind the Redstones, told The Hollywood Reporter on Wednesday that he was in favor of a CBS-Viacom merger, in part because the larger scale would help the company in striking carriage deals. "Is it logical? Yes, if CBS is thinking, 'How do [we] go global quickly?' This is one way," said Gabelli. He added that for Shari Redstone, "Romancing Les [Moonves] has got to be a high priority right now."

Viacom's stock price at Wednesday's market close was trading roughly where it stood after the first trading day after the CBS separation when adjusting prices for dividends and stock splits. In comparison, CBS' market value has risen more than 160 percent.

Read NA's full letter below:

National Amusements Inc. Proposes Combination of CBS and Viacom

National Amusements Inc., the owner of a majority of CBS and Viacom’s voting stock, today announced that it has asked the boards of CBS and Viacom to consider a potential combination of the companies. A copy of the text of the letter transmitted today to the respective boards is set forth below.

Members of the Boards:

We believe that a combination of CBS and Viacom might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape.

As a result, we would like both companies’ boards to consider a potential combination of the companies. Our tentative view is that the optimal structure would be an all-stock transaction in which the stockholders of each company would receive shares in the combined company of the same class as they currently hold.

We therefore request the board of each company take the appropriate steps to consider the proposed transaction. We believe that any transaction should be the result of full and fair deliberation and negotiation, and that any transaction would proceed only if it is approved by each board. None of Sumner M. Redstone, Shari E. Redstone or David R. Andelman will vote as directors on the consideration of this matter by either company’s board, and none will participate in any of the related deliberations.

To avoid any doubt, National Amusements is not willing to accept or support (i) any acquisition by a third party of either company or (ii) any transaction that would result in National Amusements surrendering its controlling position in either company or not controlling the combined company. We believe moving forward expeditiously, but with due care, is important and we are prepared to be of assistance to the two companies as they explore this possibility.

Thank you.

Sincerely,

National Amusements, Inc.