Why Viacom Shares Are Trading Higher Today

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What happened

Shares of Viacom (NASDAQ: VIA) (NASDAQ: VIAB) traded up more than 7% on Tuesday afternoon after the media company settled a contract dispute with AT&T and a report surfaced claiming on-again, off-again merger talks with CBS (NYSE: CBS) could soon resume.

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So what

Viacom on Monday reached a deal with AT&T to avert a blackout of Viacom channels including MTV and Comedy Central on AT&T platforms. The New York Post reported that the ongoing dispute with AT&T was a "major hurdle" in negotiations with CBS, saying that with the issue now resolved, CBS' independent directors intend to tell the rest of the board they are ready to head back to the negotiating table.

It's been more than a decade since CBS and Viacom split into separate companies. But in recent years, Shari Redstone, whose family controls both, has been pushing for the two to reunite. The initial efforts were thwarted by CBS' former CEO Les Moonves, but with Moonves now out, the Post said, top officials believe some of the sticking points from earlier negotiations can be resolved.

Now what

Even if the rumors are true, there are no assurances a deal will happen. The Post said that CBS is expected to ask Viacom to pay a premium to get a deal done, and it is unclear whether Viacom CEO Robert Bakish and CBS interim CEO Joe Ianniello would run the combined company.

Viacom could certainly use a boost. Even after the Tuesday gains, the company's shares are down 28% over the past three years, significantly underperforming shares of CBS (down 12%) and the S&P 500 (up 37%) over that time period. Given the uncertain outlook for cable properties in a quickly evolving media landscape, it's easy to see why Viacom shareholders would be excited by the prospect of a reunion with CBS.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool is short shares of CBS. The Motley Fool has a disclosure policy.