Notebook > Business

Breaking up

Business | Viacom's CEO wants to break his media company into two entities to increase profit margins

Issue: "Schiavo’s fight for life," April 2, 2005

In a surprise March 16 announcement, Viacom CEO Sumner Redstone said he hopes to divide the company into two publicly held entities in order to increase stock values. That represents a dramatic shift in direction for Viacom since its purchase of CBS in 1999.

Mr. Redstone's plan calls for MTV, Paramount, and other cable channels to be part of one company, while CBS, outdoor advertising, and local TV and radio stations comprise another.

The idea is to allow investors to value the company's units separately-the MTV properties, which are growing rapidly, versus the broadcast TV and radio properties, which show little growth but still produce large amounts of cash.

We see you’ve been enjoying the content on our exclusive member website. Ready to get unlimited access to all of WORLD’s member content?
Get your risk-free, 30-Day FREE Trial Membership right now.
(Don’t worry. It only takes a sec—and you don’t have to give us payment information right now.)

Get your risk-free, 30-Day FREE Trial Membership right now.

Viacom's split could signal an end to the media empire building that began in the 1990s. Industry leaders once believed that large arrays of media businesses under one roof would create value through the ability to sell advertising across various formats, and the use of one media outlet to supplement and promote others.

"Synergy has proved more elusive than a lot of people imagined," said Sam Craig, a professor at New York University's Stern School of Business. "The creation of content and its distribution are not only different businesses but have different degrees of volatility."

No Wal-Mart discount

As the world's largest retailer, Wal-Mart is a constant news source.

The Bentonville, Ark.-based company made headlines last month for its efforts to extend driving hours for truckers to 16 hours per day, as well as the company's plan to skirt local laws in Maryland aimed at limiting the size of commercial buildings.

Additionally, Forbes' annual listing of billionaires includes five heirs of Wal-Mart founder Sam Walton with a combined net worth of more than $90 billion.

But the biggest story was Wal-Mart's decision to pay a record $11 million fine to end a federal probe into the use of illegal immigrants to clean floors at its stores.

The seven-year saga was highlighted by an October 2003 raid of 60 Wal-Mart stores in 21 states that netted 352 allegedly illegal immigrants representing 18 different nations.

The government, though, never charged anyone at Wal-Mart with wrongdoing. Instead, a number of Wal-Mart contractors pleaded guilty to criminal immigration charges and will pay a combined $4 million in fines.

The probe, though, did initiate changes at the corporate level. For example, Wal-Mart no longer employs outside contractors to clean floors and an executive must approve contracts of more than $10,000 for services.

"We've put stronger internal controls in place so hopefully nothing like this would happen again," said Wal-Mart spokesperson Mona Williams.

Balance Sheet

· Toymakers breathed a sigh of relief last week with the announcement that an investment group intended to purchase Toys R Us for a reported $6.6 billion. With several toy store outlets closing since Christmas, Toys R Us represented one of the few remaining places that stocked a large variety of toys.

· While five Wal-Mart heirs made Forbes' annual list of billionaires this year, Microsoft CEO Bill Gates remained at the top for the 11th straight year with a net value of $46.5 billion. Investor Warren Buffett was second at $44 billion. The number of billionaires grew from 587 to a record 691 this year.

· In an effort to control soaring health-care costs, Chrysler reached an agreement with the United Auto Workers union that will require 35,000 hourly workers, retirees, and their families to pay annual deductibles of $100 to $1,000 for health care that had previously been free. Detroit's Big Three automakers spent $10 billion for medical care last year.

· Television executive Barry Diller is joining the rapidly growing business of internet search. Mr. Diller's InterActiveCorp will spend $1.85 billion to acquire Ask Jeeves, the search engine that finds answers to questions written in their natural form. Other IAC holdings include Expedia, Ticketmaster, and the online dating service


You must be a WORLD member to post comments.

    Keep Reading


    Troubling ties

    Under the Clinton State Department, influence from big money…