Viacom Inc., itself the product of several big mergers, has confirmed a plan to break up into two separate companies.
Viacom, whose holdings include CBS, MTV and the Paramount movie studio, announced late Tuesday that its board had approved a plan originally announced in March to separate itself into a company centered on broadcast TV and another one built around cable networks.
The split-up, which is expected to occur in the first quarter of 2006, will be made through a tax-free spin-off. The new company to be spun off will keep the Viacom Inc. name, while the other company will be called CBS Corp.
CBS will be led by Les Moonves, the current chief of CBS and a co-president of Viacom, while the new Viacom will be headed up by MTV chief Tom Freston, who is the other co-president.
Both companies will be based in New York and will still have Sumner Redstone as their chairman and controlling shareholder. Also, Redstone’s daughter Shari will assume a greater role in the company, as expected, taking the new title of non-executive vice chairman of the board. She had been a member of the company’s board since 1994.
The company decided to pursue the breakup after becoming frustrated with its languishing stock price. Viacom’s shares traded as high as $75.88 in July 2000, but have generally struggled since then, trading below $40 since May of last year and losing 6 percent so far this year.
Viacom hopes that the MTV-based unit will attract investors seeking fast-growing businesses, while those seeking dividends and more aggressive share buybacks will buy shares in the new CBS Corp., whose businesses are slower-growing but still generate a lot of cash.
The split-up also resolves the pressing issue at Viacom of who will succeed Redstone, who turned 82 last month, as chief executive. Before the split-up plan was announced in March, Freston and Moonves had been seen as competing to succeed Redstone as CEO.
Redstone said in a statement that the breakup would create two “strong, focused and nimble companies” that would give investors options that are “more closely aligned with their various investment objectives.”
Harold Vogel, head of the investment firm Vogel Capital Management, said that while the breakup would “focus the stocks a lot more,” it would also cause the companies to incur many new expenses, including having two sets of chief financial officers, legal and compliance departments.
Also, the separated companies could lose negotiating clout with other media entities, especially cable operators, Vogel said. A combined Viacom, for example, could withhold from cable companies the rights to retransmit its highly-rated CBS network in exchange for concessions to carry its cable channels like MTV and BET.
Viacom said it would make further announcements in the coming weeks about the split-up’s schedule, the management lineups for the two companies and their financial structures.
The move to break up the company essentially undoes Viacom’s acquisition of CBS Corp., which was announced in 1999. Viacom’s split is also the biggest example of a recent trend among media companies to trim down their holdings as they try to regain favor on Wall Street.
Investors have become disillusioned with many large media conglomerates in recent years amid growing skepticism about the “synergies” to be gained from owning such diverse groups of assets.
Radio giant Clear Channel Communications Inc. said in April that it would spin off its live entertainment business, and radio station and magazine owner Emmis Communications Corp. said it would sell its TV stations. And the shares of Time Warner Inc., which has also sold several assets including its music company, are still down about 75 percent from early 2000, when it announced its merger with AOL.