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Viacom May Split Itself in Two

Cable TV Assets Would Become Their Own Separately Traded Company

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NEW YORK (AdAge.com) -- The media giant Viacom is considering the possibility of dividing its business into two separately traded public companies, according to chairman and CEO Sumner Redstone.

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Mr. Redstone made the announcement late today, explaining the concept as grouping CBS, Infinity Broadcasting and the outdoor advertising division into one company, and its cable assets, including MTV, Nickelodeon and VH1, into another.

'Various alternatives'
"I have for several months been considering various alternatives to maximize our business opportunities in a way that would best serve our shareholders," Mr. Redstone said in a statement. "It is clear that, despite our success in operating our businesses for maximum return, Viacom's businesses have inherently different growth characteristics and investment attributes that appeal to different types of investors."

The move could be seen as a response to a declining stock value. For its most recently reported quarter, Viacom posted a net loss of $18.4 billion for the fourth quarter of 2004, compared with a net loss of $385.4 million in the same period last year. For the full year Viacom reported a net loss of $17.4 billion vs. net income of $1.4 billion in the previous year.

Likely the "different growth characteristics" he was referring to include the slowed growth of both Infinity Broadcasting and the outdoor division. On the other hand fourth-quarter ad revenues for Viacom's cable networks grew 15% to $1.9 billion. Those properties are much sought after by advertisers because they target a wide audience, including advertiser-coveted teens, young men and children. Fourth-quarter ad revenue growth was 5% for broadcast networks CBS and UPN.

Stock languishing
Merrill Lynch media analyst Jessica Reif Cohen said in a report issued earlier today that "if the stock continues to languish below what we consider to be fair value, we believe Viacom should consider breaking up the company to unlock the underlying value of the company's assets."

"It's a pretty complex situation," said Jim Goss, analyst at Chicago-based Barrington Research. "They've already functionally divided up the company into those sections, each with a very capable leader."

Les Moonves would lead the broadcast, radio and outdoor division, while Tom Freston, would head the cable networks, a split akin to their current roles as co-president and co-chief operating officer at Viacom. Mr. Redstone split their responsibilities after Mel Karmazin left Viacom for Sirius Satellite Radio.

Wall Street approves
Wall Street responded positively to the news; Viacom's shares surged $2.71 a share before closing at $37. In after-market trading, the stock continued to head north, trading at $39.45 after 6 p.m. but still down from a 52-week high of $42.32.

Speculation that Mr. Redstone would like to bulk up his cable offerings and shed some of the other Viacom divisions continues. Liberty Media Corp. is shedding his 50% stake in Discovery Communications, which includes the Discovery Channel, TLC, Animal Planet and the Travel Channel, and could be potential target for Viacom.

Cablevision not in future
One group of cable assets that will not likely become part of Viacom's portfolio are those owned by Cablevision, including AMC, WE, IFC and Fuse. According to Newsday, reporting from the Bear, Stearns Media Conference in Palm Springs, Fla., Mr. Redstone cited Cablevision Chairman Charles Dolan's tough negotiations as the chief deterrent.

At the conference, Mr. Sumner also reported Viacom has received interest in its Simon & Schuster publishing division, is considering selling its Paramount theme parks and will auction off a Canadian movie theater chain.

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