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Viacom board OKs split

Viacom Inc.'s board of directors voted on Tuesday to split the company into two entities in an effort to unlock the value it expects from its cable networks and filmed entertainment businesses.


One company, headed by Co-Chief Operating Officer Tom Freston, will retain the Viacom Inc. name, and include the cable networks, along with the Paramount motion picture production and home video units. This is considered the "growth" company, as the cable networks have consistently rising revenue, and the company has major plans to tap into its barely exploited film and television library for DVD sales.

The other, led by Co-Chief Operating Officer Les Moonves, will be called CBS Corp., and will comprised of the CBS and UPN broadcast TV networks, the Paramount television production entity; Infinity Radio; its theme parks and other units. This company will be targeted to value investors, who are expected to appreciate the steady, predictable cash flow thrown off by the radio and television units.


"The company is selling at 11.5 times cash flow, and it's very, very clear that the market will take the growth company...and value it at much more than that, my guess is probably 14, 15 times trailing cash flow," said Larry Haverty, an analyst at Gabelli & Co.

The tax-free split is expected to be completed in the first quarter of 2006. Shareholders will end up with shares in both companies.

Meanwhile, Haverty doesn't think the CBS side will be valued by Wall Street at anything less than a multiple of 10 times cash flow.

"The idea is that the value of the growth company will go up more than the mature company will go down," Haverty said.

Not everyone is sold on the split. "I don't think it's compelling in any way," said Hal Vogel, president of Vogel Capital Management. "It's a solution to choosing between Freston or Moonves for the big job, and that's kind of dodging a decision, rather than making a bold move in one direction or the other," Vogel said. "And I think it's a tough decision to make - they're both excellent executives."
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