updated 3/17/2005 8:13:24 AM ET 2005-03-17T13:13:24

Viacom Inc., which grew into a major media conglomerate with a succession of mergers, may split itself into two companies built around its main television properties, CBS and MTV.

Viacom executives hope that a breakup would allow investors to assign higher values to the company’s fast-growing cable networks like MTV, which have been held back within the Viacom group among slower-growing properties like radio, outdoor advertising and theme parks.

A breakup, should it come to pass, would also resolve the question of who would succeed Viacom’s 81-year-old CEO Sumner Redstone. The company said late Wednesday that it would provide more details on its plans in the second quarter.

Viacom, whose large array of media properties includes MTV, CBS, UPN, a large group of radio stations and the Paramount movie studio, has been frustrated with its languishing stock price. Investors have particularly soured on the radio business, which has poor prospects for growth and is facing competition for listeners from the boom in portable music players like Apple Computer Inc.’s iPods.

The two new companies would be headed by Tom Freston, the longtime chief of MTV, and Les Moonves, the head of CBS. Freston and 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 headed by Moonves would also include Viacom’s radio businesses, CBS and an outdoor advertising business.

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.

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

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,” Redstone said.

Earlier Wednesday, 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,” Reif Cohen wrote. Reif Cohen said in an interview later that she was surprised at the company’s announcement. “I did not expect this,” she said.

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., splitting off its overseas businesses last year and announcing Tuesday that it would spin off its 50 percent stake in Discovery Communications Inc. to shareholders.

Rupert Murdoch’s News Corp. recently moved its legal base to the United States and is absorbing Fox Entertainment Group Inc., its separately traded U.S. subsidiary. Time Warner Inc. has also trimmed down, selling off numerous businesses including Warner Music Group, which recently announced plans of its own to sell shares to the public.

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