Sumner Redstone's privately-held National Amusements on Monday withdrew its merger proposal for CBS (CBS.N) and Viacom (VIAB.O), citing prospects for a turnaround at Viacom under its new leadership.

Shares of Viacom tumbled 6.8 per cent in early New York Stock Exchange trading to US$36. CBS shares were down 3 per cent at US$60.69.

"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," National Amusements said in a letter to both boards.

Viacom named Bakish acting chief executive officer in October.

The letter also said "CBS continues to perform exceptionally well under Les Moonves," the company's longtime CEO.

One major sticking point in negotiations was that Moonves wanted autonomy over the merged company, as Reuters reported in October.

National Amusements was willing to compromise on this issue, but in the end decided it liked the direction Bakish was taking the company, according to a source familiar with the situation who wished to remain anonymous because they were not authorized to speak publicly.

National Amusements believes Viacom is undervalued and that Bakish can help turn it around, according to two other sources familiar with the situation.

However, it does not mean that a combination between the two companies is off the table forever, said one of the sources.

Shari Redstone and her father, 93-year-old Sumner Redstone, control 80 per cent of CBS and Viacom voting shares through their National Amusements Inc movie theater company.

In September, National Amusements called on Viacom and CBS to consider recombining, 10 years after first separating.

CBS and Viacom did not immediately have a comment on the news, which was first reported by CNBC.