In the face of a sagging stock price, Viacom Inc.'s board unanimously approved a plan Tuesday to split the nation’s third-largest media giant into two publicly traded companies, one focused on fast-growing cable programming and the other on the more mature broadcasting business.
Chief Executive Sumner Redstone will be chairman and controlling shareholder of both companies after the division occurs in the first quarter of 2006.
Redstone has been exploring a possible split since March, when he grew frustrated that troubles in the company’s Infinity Radio group were overshadowing the strength of his stable of cable channels, led by MTV and Nickelodeon. Viacom’s shares have fallen 48% since the $40-billion acquisition of CBS Corp. in May 2000.
Under the plan, Viacom shareholders will receive stock in a new company that will retain the Viacom name. That company, which will include cable channels as well as Paramount Pictures, will be run by Viacom co-President Tom Freston.
The other public company will be called CBS Corp. Headed by co-President Leslie Moonves, it will include the broadcast TV network, TV stations, outdoor advertising group and Infinity Radio as well as assets originally owned by Viacom such as the UPN network, cable channel Showtime and publisher Simon & Schuster Inc.
Freston and Moonves are each expected to become chief executives.
Also on Tuesday, Viacom named Redstone’s daughter, Shari Redstone, 51, a director since 1994, as nonexecutive vice chairwoman.
Last week, as he prepared for the board’s action, Redstone spoke with The Times about the changes he’d set in motion. Seated in the living room of his hilltop mansion high above Beverly Hills, Redstone appeared relaxed, with his wife, Paula, and his dachshund mix, Murray, at his side. At 82, he said, he was still in the vanguard, setting trends that he predicted other moguls would soon follow.
Question: Why split the company five years after merging it?
Answer: These businesses are different. We’ve realized as much of the synergies as we’re going to. I remember very well, before we merged with CBS, that Viacom was the fastest-growing media company. What were we then? MTV Networks and Paramount. MTV had about 450 million subscribers worldwide. It has more than a billion today, but that enormous value has not been realized in the present conglomerate structure.
Q: If broadcasting is holding MTV back, was the 2000 merger a mistake?
A: Wall Street wouldn’t have taken the stock to $70 a share if it wasn’t a good deal. But the world has changed. When we did that deal, radio was growing at 27% and nobody could have conceived of it going to zero. You can say that cable programming assets are all you need, but for major events like the Super Bowl, you need the reach of a broadcast network. Les [Moonves] had 9 of the 10 top shows on television last week, and that’s why CBS is a great asset to own.
Q: Were the synergies that drove some of these mergers hyped?
A: For the most part, they have already been realized. For example, instead of losing a lot of money, the UPN network will now break even and start making money.
Q: So is Viacom a pioneer in deconsolidating media?
A: The world of the conglomerate has passed. Two other major media companies are considering what we are doing to see if some kind of division of their assets would ultimately enhance their value. I know I am pioneering a trend because one came to see me and said the idea was brilliant and that he was considering doing this with his own assets.
Q: Why hasn’t Wall Street reacted more favorably?
A: I think people have been skeptical about whether the split would happen. Most analysts think this will take the stock to $45 or $50 a share. (The company’s Class B shares rose 11 cents Tuesday to $34.21.)
Q: Splitting Viacom up will give MTV Networks its own stock to use for acquisitions. What are you looking at buying?
A: Cable programming assets are at the top of the list, closely followed by Internet acquisitions and gaming, which is the fastest-growing part of the entertainment industry. I’m in negotiations to buy certain [cable] channels, which I am not going to identify.
Q: Would you consider buying a social networking site such as Friendster?
A: Tom [Freston] thinks certain Internet assets will help growth and work well with MTV. I don’t want to go into details.
Q: Did you miss the opportunity to buy an Internet company such as Yahoo when the Internet bubble burst and prices were cheap?
A: I never dwell on lost opportunities. If we need a Yahoo we will become a Yahoo. We’ll build it ourselves.
Q: Some skeptics say that cable is mature and that CBS may be the faster-growing company.
A: I don’t think any company in the world can grow as fast as MTV Networks. We have opportunities overseas that no one else has because of the strength of our brands and the eight years I’ve spent cultivating relationships in China, which is expected to become the No. 1 advertising market in the world within four to six years.
The CBS side will grow, but not as fast. But outdoor advertising, for instance, could someday grow by 20% a year. We’re No. 1 in North America. We’ve already amassed 12% of the European market. We’re on the lookout for other billboard companies.
Les’ company will have the ability to pay much more significant dividends than Tom’s. Some investors don’t want to take a chance on growth; they want a dividend. CBS will appeal to those investors.
Q: How will Viacom change without you as CEO?
A: My role really won’t change at all. I still control both companies. Les and Tom do not make a move without calling me and discussing it. They work for me. The management style of Viacom, in terms of its culture, attitude and personality, reflects my own views. And I’m not just sitting around, you know. Just last week, the governor of Hunan [China] came to my house with 23 of his lieutenants to talk about joint ventures with Viacom.
Q: Some say that your daughter Shari threw her support behind splitting the company only after she made you promise to make her vice chairwoman.
A: Absolutely, positively not. You know what I would have said? “I can’t do it, you’re not going to be vice chairman.” No one’s going to threaten me. I’ve spent my whole life building this company. Shari would never do that. Never.
Q: Is Shari’s becoming vice chairwoman a sign you’ll retire?
A: Look, sooner or later, no matter how good I look and how good my vital signs are, I’m gonna die and control of the company is likely to pass to Shari. I hope nobody inherits my power for another 20 years. I eat the right stuff. I swim every day.
Q: Naked, I hear.
A: [Laughter] Paula has helped me enjoy life a little more. She is a wonderful wife. I am more determined to live than ever before. But my hand will reach up from the grave....
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Viacom plans to divide its assets into two publicly traded entities. Here are the breakdowns of the two companies and their businesses’ 2004 revenue (in billions).
Viacom Inc., under Tom Freston
Cable networks: $5.6
(MTV, Nickelodeon, VH1, TV Land, Spike TV, BET, Comedy Central, Country Music TV)
CBS Corp., under Leslie Moonves
(CBS, UPN, Showtime, TV stations, King World and Paramount TV)
Infinity Radio: $2.1
Viacom Outdoor: $1.9
Publishing, theme parks: $1.2
Sources: Merrill Lynch, Times research