Looks like CBS and Viacom won’t merge after all. Viacom shares are down more than 6.5% in early trading, and CBS is down 3.3%, after Sumner and Shari Redstone — who control National Amusements — withdrew their support for a deal to reunite the companies.

The Redstone-controlled exhibition chain owns about 80% of Viacom and CBS’ voting shares. In September they called for the companies to reunite, after the Redstones split them a decade ago.

But in a letter to the Viacom and CBS boards this morning, the Redstones say that “after careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge the companies.”

They are “very impressed with the forward-looking thinking and strategic plan being pursued” by Viacom’s acting CEO Bob Bakish.

So even though they “know Viacom has tremendous assets that are currently undervalued… we are confident that with this new strong management team, the value of these assets can be unleashed. At the same time, CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis.”

They are “requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward.”

Viacom has confirmed that it received the letter and says it will “provide further updates accordingly.”

CNBC’s David Faber first reported the change of heart.

Viacom and CBS struggled in early talks to come up with deal terms that would satisfy their independent investors. The big question: Did Viacom deserve a relatively low value, based on its recent struggles and concerns that audiences for its young-skewing TV channels are becoming irretrievably lost to digital competitors? Or should it be seen as a potential powerhouse that could be turned around or sold for a high price?

Bakish took charge last month following what he said last week was a “year long drama” as former Viacom CEO Philippe Dauman struggled to remain in power.

Last week Bakish told an investor conference that although “we have some issues” with unimpressive performances at assets including Paramount Pictures, MTV, and Comedy Central “these are execution issues. It’s not curing cancer.”

At the same conference Moonves said that CBS is “very happy with the way we are as a standalone company.” He added CBS doesn’t have to get bigger at a time when others are consolidating. “We’re able to play the game just fine.”

Stifel Research’s Benjamin Mogil calls the Redstones’ change “clearly a negative” for Viacom that “likely reflects the challenges that any acquirer would have in turning around its cable network business.”

Those supporting a deal argued that pay TV and online distributors would have to include Viacom’s channels in new or skinny bundles if they were packaged with must-have CBS. Many also believe that Viacom’s channels would benefit from Moonves’ programming skills.

But critics said a merged company’s efforts to help the Viacom channels might hurt CBS.

“Yes, CBS can use its distribution leverage to maintain carriage or get price increases for the [Viacom] channels, but that would likely come at a cost of lower retrans/affiliate fees for CBS,” Brean Capital’s Alan Gould said last month. “To the degree the deal is about turning around the Paramount movie studio, CBS is far from uniquely qualified to do so.”

Here’s the full letter National Amusements sent this morning:

Members of the Boards:

This past September, we asked the boards of CBS and Viacom to consider a potential combination. We believed that given the industry landscape, a merger might redound to the benefit of both companies and their shareholders. On a parallel track, we urged both companies to move forward with steps to strengthen their operations on a stand-alone basis.

Over the past few months, after careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge the companies. Following the management changes that the Viacom Board put in place, we have been very impressed with the forward-looking thinking and strategic plan being pursued under Bob Bakish’s leadership. We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed. At the same time, CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis.

Based on our assessment of the strengths, progress, and future prospects of both companies, we are requesting that the boards discontinue their discussions at this time and focus instead on their independent paths forward.

We are incredibly proud of the talented and hard-working individuals who comprise both companies, and who are truly second to none in the industry. We would like to thank the boards and special committees of both Viacom and CBS for their consideration of our request.

Sincerely,
NATIONAL AMUSEMENTS, INC.
/s/ Sumner M. Redstone
Chief Executive Officer
/s/ Shari Redstone
President