6% one-day drop for subsidiary marks an Infinity of declines

Viacom’s stock hit a 52-week low and shares in its Infinity radio subsidiary fell sharply Wednesday amid investor concerns over a softening in radio ad sales.

Radio stocks were already down substantially this year due to the depressed ad environment. But the more than 6% one-day decline in Infinity seemed to make up for lost time, as shares in the No. 2 radio broadcaster previously had been spared some of the punishment meted out to other stocks in the sector.

Merrill Lynch analyst Jessica Reif Cohen noted Wall Street marked a generally down-market trading session Wednesday, with several media stocks socked by declines. Liberty Media, an AT&T subsidiary for a portfolio of media investments, was among the hardest-hit when its shares gave away $1.56, or 8%, to close at a 52-week low of $19.25.

Infinity’s soft-gloves treatment amid the recent radio sector sell-off had been largely due to Viacom’s pending acquisition of the publicly traded portion of Infinity it doesn’t now own. But the buyback caught up with Viacom on Wednesday, as its most widely tracked Class B shares dropped $4.06, or 6%, to land at $59.38.

Infinity shares shed $2.19 to close at $33.31 in trading almost three times the normal volume.

Tradeshow news triggers concerns

Market observers were left scratching their heads a bit by the sudden descent in Viacom and Infinity shares, but it seemed no coincidence that the National Association of Broadcasters Radio Show opened Wednesday in San Francisco. The tradeshow, which continues through Saturday, draws industry professionals and Wall Street analysts for presentations expected to focus on downbeat trends, including a cutback in Internet advertising on radio.

Forecasts still project a growth in ad sales of 10% to 12% this year, but that’s down from a growth rate of 15 percent last year when dot-com spending peaked. Still, some sideliners insisted the bearish behavior toward radio broadcasters is unwarranted.

“It’s still growing faster than it had on a historical basis,” said Jim Boyle, a New York-based analyst for First Union Securities who was in San Francisco for the NAB radio confab. “Once you get past the tough comparisons with last year, radio is going to grow nicely, as it has been.”

Emmis Broadcasting was off almost $1.78, or 5.7%, at $29.09. But the largest radio broadcaster, Clear Channel Communications, was bolstered by news that Moody’s Investors Service had raised its debt ratings and its shares managed to buck the trend, rising $3.81, or almost 6%, to $59.88.

“Clear Channel had gotten to a level where people were increasingly ready to jump in,” First Union’s Boyle said. “Even if you were going to be a skeptic on forward growth, it was still cheap.”

Merrill Lynch’s Cohen, who noted Clear Channel had been “hammered” in previous trading sessions, said it’s possible investors moved some money from Infinity into Clear Channel.

Viacom and Infinity’s midday declines were even more precipitous than the stocks’ closing prices. Cohen said Merrill issued an industry report on radio broadcasting early Wednesday that may have rattled some investors.

The New York-based analyst, who was traveling in South America, said she made an afternoon call to Merrill brokers to assure them that projections for Infinity show “phenomenal” increases in cash flow in the second half of 2001.

Roughly 40% of Viacom’s cash flow comes from Infinity. The New York-based conglom said last month it would acquire the 36% of Infinity it doesn’t now own for $15.17 billion in Viacom stock.

Merrill Lynch reiterated its “buy” rating on Viacom on Wednesday. Viacom’s Class A shares closed down $2.81, or 4.4%, at $60.63.

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