There's only one issue driving Sumner Redstone to split Viacom into two separate companies - - Wall Street valuation. So, the big question is whether the split will actually accomplish what Redstone wants. Will investors pay more for stock in the two parts than they're currently willing to pay for the whole? If not, then the split will have been for naught. Redstone believes that the broadcasting/outdoor company, which will be called CBS Corporation and headed by Les Moonves, is holding back the cable networks/movie studio company, which will hold onto the Viacom name and be headed by Tom Freston. Is he right?

At Thomas Weisel Partners, analyst Gordon Hodge values the "content assets" (Freston's company) at 15-20 times EBITDA, making them worth 31-41 bucks per share, while he values the "distribution assets" (Moonves' company) at 10-12 times, or 19-23 per share. Subtract seven bucks per share in net debt and reduce by at least 20% because of Redstone's voting control - - you come up with a sum-of-the-parts of 33-46 per share. Check out the chart.

Viacom sum-of-parts analysis
(in millions, except per share)
Unit	2005 EBITDA*	Multiple	Value per share
Cable networks	$3,168	15-20	$30.05-40.07
TV broadcasting	$1,522	10-12	$9.62-11.55
Entertainment	$522	7-9	$2.31-2.97
Radio	$940	12-14	$7.13-8.32
Outdoor	$504	13-15	$4.14-4.78
Corporate overhang	-$241	13-15	-$1.98-2.99
Other, intersegment elimination	-$119	13-15	-$0.98-1.13
Total	$6,296	12.6-16.1	$50.30-64.28
Net debt			-$6.74
Hidden assets (Westwood One)			$0.21
Private market value			$43.77-57.75
Deduct control premium			20-25%
Sum-of-parts value			$32.83-46.20
*estimated
Source: Thomas Weisel Partners

RBR observation:
Investors are fickle folks. Viacom's stock got a brief boost after Redstone announced the break-up plan a few months ago, but lately has been trading at the low end of the 33-46 range from Hodge's analysis. That could mean that there's a lot of upside post-split. That will take place if value investors, with an appreciation for all that free cash flow, buy up the CBS shares and growth investors, who want a fast ride on a hot stock, flock to the Viacom shares. Of course, there could be some unforeseen problems ahead and the Viacom shares could become less attractive if the cable networks business falls out of favor. We recall that just a few years back, radio stocks were a hot commodity.