- The Washington Times - Wednesday, March 16, 2005

NEW YORK (AP) — Media conglomerate Viacom Inc., frustrated with a languishing stock price, said yesterday that it is considering a plan to split into two companies to allow investors to value its businesses separately.

A breakup of the New York-based media company, whose properties include CBS, MTV, VH1 and the Paramount movie studio, would also solve the question of who would succeed Sumner Redstone as chief executive officer. The company said it would provide more details in the second quarter.

Confirming a report on the Wall Street Journal’s Web site, Viacom said late yesterday it was exploring a plan that would split the company into two entities: One anchored by its fast-growing cable networks such as MTV, led by longtime MTV chief Tom Freston; and another built around the broadcast television businesses that would be run by CBS head Les Moonves.

Mr. Freston and Mr. Moonves have been contending for the top job at Viacom since last June, when Chief Operating Officer Mel Karmazin left in a power struggle and triggered the two-way race.

Under the breakup plan being considered, the broadcast television company would include Viacom’s radio businesses, which remain profitable but have fallen out of favor with growth prospects and increasing competition from portable music players like Apple Computer Inc.’s IPod.

Viacom’s stock has been languishing below $40 since April 2004 as investors remained frustrated that the high-growth businesses like MTV remained tied to slower-growth properties like radio, outdoor advertising and theme parks.

Viacom’s shares jumped after news of the potential breakup reached the market, ending up $2.71 or 7.9 percent at $37 on the New York Stock Exchange. In after-hours trading the shares gained another $1.70, or 4.6 percent.

Last fall Viacom also separated itself from Blockbuster Inc., its video rental unit that had also fallen out of favor with investors because of heavy competition from cheap DVD sales from Wal-Mart Stores and DVD rent-by-mail services.

Mr. Redstone said in a statement that despite the company’s efforts to drive its various businesses for the best possible returns, those businesses “have inherently different growth characteristics and investment attributes that appeal to different types of investors.”

What’s more, “it has also become clear that this important distinction is likely to continue to limit Viacom’s ability to receive full value for its assets and its prospects in the investment community,” Mr. Redstone said.

Earlier yesterday, media analyst Jessica Reif Cohen of Merrill Lynch sent a report on Viacom to investors suggesting essentially what the company announced later in the day — that the company consider breaking itself up in order to allow the market to value its pieces separately.

“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,” Miss Reif Cohen wrote. In an interview later, she expressed surprise about the company’s announcement. “I did not expect this.”

If the breakup goes through, it would mark the latest move by a media conglomerate to restructure itself and streamline under pressure from investors. Media investor John Malone has been paring down the complex holdings of his company Liberty Media Corp. Rupert Murdoch’s News Corp. recently moved its legal base to the United States and is absorbing Fox Entertainment Group Inc.

Time Warner Inc. has sold off numerous businesses including Warner Music Group.

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