Even before Viacom (VIA; VIAB) announced yesterday that its interim CEO Tom Dooley will leave the company, many have been speculating on the possibility that the beleaguered media company may recombine with CBS (CBS). After the news, UBS analyst Doug Mitchelson made the case that the company's press release seems to indicate ongoing consideration of such a merger, an opinion shared by his peer at Telsey, who downgraded CBS citing the likelihood of a deal.

CEO DEPARTURE, REDUCED DIVIDEND PAYOUT: After reviewing its capital structure and operating budget, Viacom announced yesterday that it is reducing its dividend payout and is also lowering its fourth quarter earnings forecast. Additionally, Viacom also said that it has ended the process of seeking a minority investor in Paramount Pictures and that its interim President and CEO Tom Dooley has informed the Board of his decision to depart the company in November.

POSSIBLE CEO CANDIDATES: According to The Wall Street Journal, Viacom hasn't hired an executive-search firm, but intends to conduct a full search of both internal and external candidates. Former DreamWorks Animation CEO Jeffrey Katzenberg and former Disney (DIS) COO Tom Staggs have been floated as outside contenders for the CEO post, but a person close to Katzenberg said he isn't interested and Staggs' Disney contract included a non-compete clause that would make it difficult to woo him in the next several months, the report stated. The replacement many Wall Street analysts would like to see lead Viacom is CBS' CEO Les Moonves, but people close to the latter have doubts a deal to tie up the two could be structured to adequately reward CBS shareholders, The Journal added.

MERGER WOULD BE MOST ACCRETIVE OUTCOME: In a note following Viacom's announcement, UBS' Mitchelson pointed out that investors at this point have not been given a clear direction of strategy. Nonetheless, he believes the company's press release seems to indicate ongoing consideration of a merger with CBS, which he sees as the most accretive outcome for the former given meaningful revenue and cost synergies. Additionally, the analyst said Viacom's challenged balance sheet needs to be addressed given macro uncertainty, ongoing secular pressures and in preparation for 2018/2019 distribution renewals.

MERGER LIKELY: Telsey analyst Tom Eagan downgraded CBS to Market Perform from Outperform, saying that a merger with CBS seems likely following the news out of Viacom yesterday. The analyst believes National Amusements, through which Sumner Redstone controls an 80% voting stake in both Viacom and CBS, "must have a grander plan in mind" and that is one of the reasons why Dooley is leaving the media giant. Nonetheless, Eagan noted that while he is a fan of CBS' Moonves, it will take "years" for Viacom to be turned around.

WHAT'S NOTABLE: On September 15, during the Bank of America Merrill Lynch 2016 Media, Communications & Entertainment Conference, CBS CEO Leslie Moonves said that the company was not in any active discussions with Viacom for a possible takeover. Nonetheless, the executive noted that the company has money for M&A, should the right acquisition opportunity arise.

PRICE ACTION: In morning action, class B shares of Viacom have gained about 0.5% to $36, while CBS' stock is fractionally up to $50.12 per share.