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Viacom to Sell Most of Simon & Schuster

Media: Company will keep consumer business of publisher, whose sale could net up to $4 billion.

January 15, 1998|From Bloomberg News

NEW YORK — Viacom Inc. put much of its Simon & Schuster book-publishing company up for sale, a move that could bring the media company as much as $4 billion.

The business, which includes the publisher's educational, professional and reference segments, has annual sales of about $2 billion. Viacom will keep Simon & Schuster's consumer unit, which produced a string of bestsellers last year.

Viacom is likely to use proceeds from the sale to halve its $8-billion debt, analysts said. The move comes amid speculation by analysts that Viacom will also eventually spin off its Blockbuster chain of video stores to focus on its core entertainment business, including Paramount Pictures and cable TV channels such as MTV.

"You will have a smaller but much sexier company with more attractive assets," said Richard Read, analyst at Arnhold & S. Bleichroeder.

New York-based Viacom also said its troubled Blockbuster chain is showing signs of turning around. Sales at outlets open at least a year rose in the fourth quarter--the first increase in a year and a half.

The company has been revamping the chain by adding more copies of hit movies and focusing on video rentals rather than sales.

Viacom said it expects to reach an agreement in the second quarter for its publishing assets. Possible buyers include McGraw-Hill Cos. and Bantam Doubleday Dell, which is owned by Bertelsmann, analysts said.

"When we are all done, even after paying taxes, we'll make more money on the sale of Simon & Schuster than we paid for it," said Sumner Redstone, chairman and chief executive of Viacom. "One frustration is that concerns over Blockbuster on Wall Street have totally obscured the value of our other businesses."

He said the sale will unlock the value of the book division for shareholders while allowing the company to reduce debt. Redstone said he wants to restore Blockbuster to the growth engine it once was before considering a spinoff.

Simon & Schuster is one of the most profitable book publishers in an industry that has been hurt by lower sales, analysts said. It is the largest publisher of educational and computer books.

"Simon & Schuster doesn't really fit in with Viacom's entertainment production and distribution businesses," said David Londoner, an analyst at Schroder & Co.

Speculation about a possible sale of the publisher has been the main reason Viacom's widely traded Class B shares are up 44% since the end of October. The shares fell 44 cents to close at $43.38 on the American Stock Exchange.

Some investors think Blockbuster, which saw its business falter after a disastrous move away from its main rental business, should be the next to go.

"A spin off of Blockbuster would put their balance sheet in a position to pursue acquisitions in the entertainment sector," said analyst Barry Hyman of Ehrenkrantz, King, Nussbaum Inc., which owns more than 30,000 Viacom shares for clients.

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