The directors of Viacom voted yesterday to split the company in two, supporting a plan by its chairman, Sumner M. Redstone, to increase the value of the company's shares.
Mr. Redstone, who has majority control of Viacom, is to be chairman of both companies. His daughter, Shari E. Redstone, recently named nonexecutive vice chairwoman of Viacom, is expected to have that position at the two new companies.
A tax-free spinoff, to be completed in the first quarter of 2006, is intended to create one faster-growing company that would contain Viacom's popular cable networks, including MTV, Nickelodeon and Showtime. It will also include Paramount Pictures and Simon & Schuster and will be led by the co-president of Viacom, Thomas E. Freston.
The other company, positioned as a value company, will include CBS and its television stations, outdoor advertising, radio and Paramount Television. It will be led by the other co-president, Leslie Moonves.
Viacom did not detail the capital structures of the companies, including how much debt each would hold.
"There are a number of factors yet to be determined that are important for valuing the two new companies," Douglas Mitchelson, a media analyst at Deutsche Bank, said. "They include how much of the $7 billion in debt each company assumes and the dividend and share repurchase policies. For example, we expect CBS to have a greater share of the debt, given its lower growth profile, which should enhance equity returns." He continued, "Investors in the MTV-led company would be seeking strong revenue momentum and extensions into new faster growing media."
A transition committee - including Mr. Redstone, Ms. Redstone and two directors, Frederic V. Salerno and Philippe P. Dauman - will oversee the split.
Once the split is completed, each company will have to revamp its board so it has a majority of independent directors.
The decision to split was preceded by intense debate, but the board's vote was unanimous. Shari Redstone, however, was initially skeptical of the split, several people close to the company said.
A telephone message left at Ms. Redstone's office was not returned.
"My daughter was never against it," Mr. Redstone said yesterday. "She wanted to give it some thought."
Mr. Redstone seemed delighted at the approval. "There might have been skeptics," he said, but in the end, whatever their initial doubts, the board voted unanimously.
Viacom closed yesterday at $34.64 a share. Three years ago, the stock traded at $44.77 a share.
Mr. Redstone, who retains voting control of both companies, said he felt his relationships with his chief lieutenants would not change. "Les does not make a move without calling me, and Tom does not either, and they would be happy to tell you the same thing," he said. "That is the way they have operated since they were running the business."
Splitting the company will solve some management issues. Without a split, Viacom's board would ultimately have to choose between Mr. Freston and Mr. Moonves as chief executive, if Mr. Redstone stepped down.
The split will force the company to take on additional overhead, because it will have two discrete corporate structures. But the company hopes each chief executive will run a tighter, more focused business that will be better able to control costs.
Neither Mr. Freston nor Mr. Moonves has yet been named a chief executive, but they are expected to be named soon, and to receive new contracts. Last year, each signed new agreements as co-presidents of Viacom that included options in Viacom stock.
The contracts upset some investors. Mr. Redstone, Mr. Moonves and Mr. Freston received salary and bonuses of about $20 million and stock options of about $33 million, at a time when Viacom's shares lagged.
Before electing Mr. Moonves and Mr. Freston chief executives, the board may seek to negotiate contracts in which their compensation would be more heavily based on performance, a person close to the company said. That could include a variety of criteria. Operating performance has been a crucial factor in compensation, but when the stock did poorly, the size of the compensation upset some investors.
With the formation of the new companies, the contracts may be structured so that, for example, Mr. Freston's package could include more options because he will run a growth company, while Mr. Moonves's package may include restricted stock.
Age of the media conglomerate is over, Viacom's Redstone says
By SETH SUTEL
Associated Press
7/11/2005
Associated Press
Viacom's Sumner Redstone talks with the media over the weekend at the Allen & Co. conference in Sun Valley, Idaho.
SUN VALLEY, Idaho - Sumner Redstone, one of the great empire-builders of the media world, said this past weekend that he had no regrets about his decision to break up Viacom Inc., the massive media company that owns MTV, CBS and the Paramount movie studio.
"The age of the conglomerate is over," Redstone said, addressing a small group of reporters at an annual retreat for media moguls in Sun Valley, a scenic resort tucked into the mountains of Idaho.
"Sometimes divorce is better than marriage," Redstone said. "The world has changed" since Viacom announced in 1999 that it was buying CBS Corp. "It's time to take a new look and adapt."
Redstone, a regular guest at the annual Sun Valley conference, had been keeping a low profile at this year's event. On Friday, he agreed to speak to reporters in the lobby of the resort as other key players in the media world including News Corp. Chairman Rupert Murdoch and Time Warner CEO Dick Parsons strolled past.
Last month Viacom's board approved a plan that would split the company into two entities, one with a focus on fast-growing cable networks including MTV, VH1 and Nickelodeon, and the other on cash-rich but slower growing businesses like broadcast television and radio.
The two companies will be run by Redstone's two deputies at Viacom, former CBS chief Les Moonves and former MTV head Tom Freston. Both executives were also attending the Sun Valley meetings.
The annual retreat for media executives, investors and technology gurus draws an A-list crowd from the business world, including investor Warren Buffett, who owns The Buffalo News; Microsoft Corp. Chairman Bill Gates and both Michael Eisner, the outgoing CEO of Walt Disney Co., as well as incoming Disney CEO Bob Iger.
Addressing the Viacom split, Redstone said that "the time has come to be more nimble" for media businesses. Viacom is hoping that the split will allow each company to move more quickly in its own realm and also attract investors interested only in those sets of businesses.
The stocks of large, diversified media companies including Viacom and Time Warner have been out of favor on Wall Street as investors have become skeptical of claims that the various kinds of media businesses would create more value under one roof than they would operating as separate businesses.
"It hasn't been working," Redstone said of large media conglomerates. For Redstone, the breakup reverses more than a decade of building up Viacom into a major diversified media conglomerate through a series of acquisitions, including the Paramount movie studio, the radio and outdoor businesses that came with CBS, and the Blockbuster video rental chain, which has since been separated from Viacom.
The split also solves the question of who will succeed Redstone, who turns 82 in May. Moonves has been tapped to run the business centered on CBS, while Freston will run the other company, which will keep the Viacom name. Redstone will remain controlling shareholder of both companies.
Redstone's daughter Shari is also taking a greater role in the company, and was recently named to the new position of non-executive vice chairman of the board. She had been a member of the company's board since 1994.