Viacom's Redstone Talks Up Split

The media giant's chairman reiterates his commitment to unlocking shareholder value.
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(VIAB) - Get Report

Chairman Sumner Redstone emphasized once more Tuesday that he wants to split the company in two.

Redstone said he's committed to a splitup that could be completed by the first quarter of 2006. The news came as the company posted strong first-quarter numbers Tuesday, led by a solid gain at its cable networks unit.

For its first quarter ended last month, the NewYork media giant earned $585 million, or 36 cents ashare. That's down from the year-ago continuingoperations profit of $618 million, or 36 cents ashare. But on an apples-to-apples basis, excluding atax-related gain in the previous-year quarter,latest-quarter earnings rose to 36 cents a share from29 cents a year earlier.

Revenue jumped 5% from a year ago to $5.6 billion,led by a 19% gain in cable networks revenue. Advertising rose 5% from a year ago as well. Cash flow, though, fell 2% from a year ago to $828 million as taxes rose.

Analysts surveyed by Thomson First Call hadforecast a 31-cent-a-share profit on revenue of $5.42billion.

Redstone's comments give Wall Street the news it wanted to hear on

the company'sdisassembly dance. The executive had prompted roars of approval last month by saying he would take a look at splitting up the company to separate fast-growing properties like MTV from cash cows like CBS.

Personally Committed

Viacom also reaffirmed 2005 guidance, saying it"is on track to deliver mid-single-digit growth inrevenues and operating income and high-single-digitgrowth in earnings per share."

In an early morning statement, the company pointedto its strong cable growth and shrugged off worriesabout its showing on the TV front.

"Viacom is off to a very solid start in 2005,highlighted by the continued extraordinary performanceof our cable networks operation, which recorded 19%gains in revenue and 20% growth in operating income inthe first three months of the year," Redstone said. "Outdoor posted double-digit operating income gains of 20% on mid-single digit revenue growth, and radio continued to show top-lineimprovement reflecting our targeted station andprogramming investment strategy to drive futuregrowth. Although television revenue and operatingincome declined in the first quarter because of theabsence of the Super Bowl and political ad spending,CBS is going into the upfront advertising season withthe strongest ratings and demographic mix in over 10years, which bodes very well for us for the rest of2005 and into 2006."

Digital Revolution

But talk of a split dominated Viacom's screen Tuesday.

Speaking on an earnings call, Redstone said, "It's a complicated process that takes time to analyze, but we're making good progress. I want all of you to know that I am personally committed to this separation." He added that the process needed thorough analysis before finalization, but that for Viacom to fully take advantage of its assets and to remain the media leader of the future, he envisions two companies.

In terms of deconsolidation, Redstone said that he believes it is the "right strategic plan for our future." Analystsgenerally applauded Viacom's plan to look at asplitup, and some went so far as to say the company'smove could point to a new trend.

After a decade of leaders extolling theeffectiveness of media consolidation, so-called assetbundling seems to have fallen out of favor. Even so, competitors NBC Universal and

News Corp.

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have continued to trumpet the benefits of media consolidation for their respective companies.

Asked what future acquisitions Viacom might be looking at on the deal side, co-CEO Tom Freston said if an older-skewing cable network came up for sale, Viacom would take a look at such a prospect, along with looking at other Web-based companies that might be complementary to Viacom.

Redstone also pointed out that the business is on "the brink of a full-scale revolution in digital programming" and that MTV and other Viacom businesses are aggressively pursuing wireless networks, digital initiatives and building new revenue streams through newer innovations including text messaging and ring tones.

Viacom closed Monday at $34.16.