Redstone, who had pushed for the companies to explore a merger, is reversing course and now backs acting CEO Bob Bakish and his plan to bring the Viacom back to prominence. Redstone now wants Viacom to remain an independent company, according to sources on both sides of the proposed deal.
The move was subsequently confirmed in a message Monday from National Amusements — the Redstone family's privately held company — to the boards of CBS and Viacom.
"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," the message said. "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."
The two companies had engaged in preliminary conversations about a merger, but CBS had yet to make a bid for Viacom.
Viacom shares shed 9 percent on Monday. CBS shares fell 2.8 percent before briefly rebounding back into positive territory after the New York Post reported that Verizon was interested in buying the company. CBS shares later ended the day modestly lower. Both companies declined to comment to CNBC.
Separately, the company appointed Bakish as president, CEO and as a member of the board, effective immediately. The nearly 20-year Viacom veteran has served as acting president and Chief Executive Officer of the company for a little less than a month. Most recently, he served as president and CEO of Viacom International Media Networks.
The Redstone family, whose National Amusements also controls CBS, had proposed recombining the two media giants a decade after they split. Shari Redstone had cited increased scale as one reason for the merger.
Her 93-year-old father, Sumner, split CBS and Viacom in 2006, believing it would unlock the value of the Viacom side, which had a bevy of cable channels viewed as fast growth at time — versus CBS, which held a challenged broadcast network.
—Reporting by CNBC's David Faber