Viacom board OKs spinoff

The article was updated at 7:47 p.m.

NEW YORK — The Viacom board unanimously voted Tuesday to carve two companies out of Sumner Redstone’s kingdom.

An upbeat Redstone heralded the move — which gives Tom Freston and Leslie Moonves their own companies to run — as a sure-fire way to unlock value and power up a languishing stock by becoming more nimble.

“I’m following my instincts and I’m convinced we are doing the right thing. In this scenario, a friendly divorce is better than marriage,” Redstone told Daily Variety.

“I’ve learned from experience that you never look back and that you don’t follow the crowd. I think the age of the conglomerates is probably over,” said Redstone, revealing that he hatched the breakup plan at least seven months ago, long before his intent became public.

In broad terms, the tax-free split undoes the CBS merger and separates the broadcast part of the empire from the faster-growing cable and film side.

For the first time, Viacom revealed the names of the two new publicly traded companies: the Paramount and the MTV Networks side will retain the name Viacom Inc.; the Eye empire will be called CBS Corp.

Redstone on the rise

Tuesday’s board session marked another crucial milestone for Redstone. His daughter, Shari Redstone, was named nonexecutive vice chair, a clear signal that she’s in line to take her father’s perch.

Post-split, Sumner Redstone will remain chair and controlling shareholder of Viacom Inc. and CBS Corp., both of which will be based in Gotham.

Both Redstones were tapped Tuesday by the board to lead a special committee that will monitor the breakup, which is expected to be completed in the first quarter of 2006.

Shareholders at the time of the divorce will hold stock in both companies.

Viacom Inc., which will be run by Freston, will house Paramount Pictures, the lucrative MTV Networks that were the heart of the old Viacom, Paramount Home Entertainment and Famous Music.

CBS Corp., which goes to Moonves, will include the CBS and UPN networks, Viacom TV stations, Infinity Broadcasting, Viacom Outdoor and the CBS, Paramount and King World TV production studios.

Moonves also will have dominion over pay cable net Showtime, publishing house Simon & Schuster and Paramount Parks.

Viacom Inc. and CBS Corp. will have their own boards.

Additional details of the two new companies — including financial structures, management teams and a more detailed timetable — will be disclosed in the coming days, Viacom said.

“The board believes this transaction will result in two strong, focused and nimble companies and will better enable management to directly impact and maximize the strengths of their respective businesses,” Redstone said.

Stock options

Having two companies to trade in will give current and potential stockholders attractive investment options that are more closely aligned with their various investment options, Redstone said.

While Freston’s empire is tagged as “high-growth,” the CBS side will be cash-rich, meaning it can return value to shareholders in the form of dividends.

Redstone also rejected the notion that the divorce means synergy is dead, saying the two companies can still work together.

News of the Viacom board vote broke just before the market closed, pushing Viacom shares up 37¢ to close at $34.64.

Viacom is hardly alone in deciding to opt for a spinoff in the hopes of driving up the stock; many other U.S. companies have taken that route in the last two decades.

Wall Streeters have generally been upbeat about Viacom’s battle plan, but some question whether creating two companies from one will actually make them more attractive investment prospects.

“The problem is there hasn’t been much growth in the last three years; (Rupert) Murdoch has that problem and Time Warner has that problem,” said independent media analyst Dennis McAlpine.

2 birds with 1 Redstone

The split also seems to solve Redstone’s most vexing problem: how to retain both Moonves and Freston.

“It allows him to keep both executives without having to pick one,” McAlpine said.

While Viacom once represented the conglomeration of media, it now is leading what some expect will be a long-term deconsolidation trend.

“The move toward conglomeration and centralization is really a pendulum,” said Paul Levinson, chairman of communications and media studies at Fordham U. “We are going to start seeing media conglomerates distinguishing between types of programming and businesses, and Viacom is the first to begin doing this.”

(Michael Learmonth contributed to this report.)

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