[opendtv] News: Viacom Considers a Plan to Split Into 2 Companies
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Thu, 17 Mar 2005 08:23:17 -0500
http://www.nytimes.com/2005/03/17/business/media/17viacom.html?th
Viacom Considers a Plan to Split Into 2 Companies
By GERALDINE FABRIKANT
Published: March 17, 2005
Viacom said yesterday that it was weighing a plan to divide its
businesses into two public companies, a move that would unravel years
of empire building by the chief executive, Sumner M. Redstone, while
resolving the company's succession issues.
One company, led by Leslie Moonves, the co-president, would include
CBS, its television stations, outdoor advertising and radio. The
other, to be led by the co-president Tom Freston, would include MTV,
Nickelodeon, Showtime and the other cable networks. It would also
include Paramount Pictures, Paramount Television and Simon & Schuster.
The announcement is the second in two days by a media company
preparing to split up assets. On Tuesday, Liberty Media announced
that it would spin off the Discovery Holding Company.
Those plans raise the question of whether, after a decade of
building media conglomerates, companies will now start breaking them
up. Already there is a drumbeat among investment bankers to promote
such splits.
The Viacom move is aimed at increasing the value of the company's
depressed stock. Shares of Viacom have fallen from where they were in
September 1999, when Viacom announced its merger with CBS.
"There are a lot of frustrated people at the company," said one
executive who spoke on condition of anonymity. "There are an awful
lot of people here whose stock options are underwater."
The move answers the succession question at Viacom by giving Mr.
Moonves and Mr. Freston their own public companies to run.
When Viacom and CBS merged, company executives hoped that by
combining Viacom's more youth-oriented cable networks, like MTV, with
CBS, which attracted older viewers, the company could offer
advertisers one-stop viewing for audiences of all ages.
In addition, the merger was said to offer benefits like allowing the
marketing of MTV programming on CBS's radio stations.
The acquisition followed Mr. Redstone's hard-fought battle with QVC
to acquire the Paramount Pictures Corporation, which Viacom won in
1994.
But that aggressive growth strategy failed to pay off, at least in
terms of Viacom's stock price. Shares were trading at $46.30 a share
on Sept. 8, 1999, the day after the CBS deal was announced. Shares
rose $2.71 yesterday, to close at $37.
Last year, Viacom spun off its Blockbuster unit.
"It is a momentous event that Sumner is willing to admit he was wrong
and get smaller to create shareholder value," said Richard
Greenfield, a media analyst at Fulcrum Global Partners. "He is
totally reversing everything that has occurred since 1995 and totally
undoing all the size and scale that he hoped to create through
acquisitions. Despite the mergers, the stock has not performed well."
Each of the new companies would still be controlled by Mr. Redstone,
through his ownership of 12 percent of the company's equity and 71
percent of its votes. The company is positioning Mr. Moonves's
company to appeal to value investors, because it would grow more
slowly but generate strong cash flow that could be used to pay
dividends and buy back shares.
Mr. Freston's company would have more of the characteristics of a
growth company, Mr. Redstone said.
Though each company would have the additional cost of paying
separate staffs, Mr. Redstone said yesterday that Viacom hoped that
by more clearly defining each group of assets, it might attract new
investors who want either value or growth.
Several people close to the company said Viacom had also weighed
spinning off the slow-growing radio company into a third business,
but decided against that as not aggressive enough.
Yesterday, Mr. Redstone said he had been considering a split since
he appointed Mr. Freston and Mr. Moonves in June 2004. Several people
close to the transaction said, however, that investment bankers had
been aggressively promoting it and that the plan was worked out over
the last two weeks.
Although Viacom seems likely to complete the split, there are a
number of issues - including how much debt each company would bear -
that have not been resolved.
A raft of bankers are working on the deal, including Morgan
Stanley, Bear Stearns, Citibank and Lazard. Indeed, Lazard was one of
the first bankers involved. Bruce Wasserstein, the head of Lazard, is
a distant cousin of Mr. Moonves.
Despite the rise in share price yesterday, some analysts were
skeptical that the split would impress investors over the long term.
"It sounds a bit desperate to me," said Dennis Leibowitz, who runs
Act II Partners, a hedge fund. "It seems more of a financial
shenanigans."
But Mr. Redstone was optimistic, noting that the benefits would
include giving MTV a "high multiple" stock it could use for
acquisitions.
Analysts say there are a variety of reasons Viacom has not done
better. Some investors became worried about the slowing growth in
advertising, a revenue stream threatened by digital video recorders
and increasing interest in Internet advertising. Viacom has also been
plagued by management problems. During the years that Mel Karmazin
was president of the company, he and Mr. Redstone were constantly at
war and appeared to have different ideas about how the company should
be run.
When Mr. Redstone appointed co-presidents, both of whom were highly
regarded, analysts worried about the inevitable rivalry between them.
"These bake-offs never produce great management results," said one
executive who is close to the company, but who insisted on anonymity.
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