Decision Near on Viacom Split

May 30, 2005  •  Post A Comment

Viacom’s board of directors continues to mull over a proposed split of the media giant, and has committed to making a decision by the end of June, Chairman and CEO Sumner Redstone said last week.

“This is a complicated process but we are making good progress,” Mr. Redstone said last Thursday at the company’s annual shareholders meeting.

Viacom earlier this spring announced that it is exploring a possible split of the company, with the cable properties and film studio forming a growth company that would use its stock price to make acquisitions, while the broadcasting, radio and publishing assets would focus more on generating cash that would be used to compensate shareholders in the form of dividends.

The company has committed to reach a decision about the breakup during the second quarter, though some observers expected the decision by now, particularly since Mr. Redstone has said repeatedly that he is committed to splitting his company into two pieces. Should the company stick to its timetable of reaching a decision by the end of June, Mr. Redstone said, he expects the separation to be completed by first quarter 2006.

The idea behind the split is to goose Viacom’s stock price, which has languished for years and was a bone of contention among some shareholders at the company’s annual meeting. Analysts have said that some investors were confused by Viacom’s collection of assets, which include high-growth properties such as MTV Networks and low-growth assets such as CBS and Infinity Broadcasting. By separating out the slow-growth units from the high-growth ones, Viacom’s management believes that investors will flock to the stock that best suits them, driving up the share prices of both companies.

“Returning value to shareholders is what we’re talking about,” Mr. Redstone said, noting that he, too, was frustrated with Viacom’s lackluster stock price and the apparent disconnect between Viacom’s operating performance and the price of its widely held Class B shares, which are off more than 4 percent since the start of the year.

Meanwhile, Viacom Co-President and Co-Chief Operating Officer Leslie Moonves told shareholders that the weak ratings performance of NBC has led to “hundreds of millions of dollars” of advertising spending that’s up for grabs during this year’s upfront selling period, and “CBS is positioned to take the lion’s share.”

Another matter widely discussed at the meeting was the ongoing labor dispute between the Writers Guild of America and CBS. Several members of the union criticized Viacom management for advocating a pay cut for WGA members at a time when the company appears to be continuing to grow. Mr. Moonves said both sides are scheduled to meet June 27.

In administrative matters at the meeting, shareholders overwhelmingly elected the slate of board members up for election, appointed PriceWaterhouseCoopers as independent auditor and voted to raise director compensation to levels more commensurate with comparable companies.