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Viacom Sets $8B Buyback

10/31/2004 7:00 PM Eastern

Viacom Inc. soared last week after saying it would more than double its share buyback program to about $8 billion.

Viacom had authorized the repurchase of about $3 billion of its shares in 2002 and had bought about $1.7 million of its shares through that program. Most analysts were expecting the media giant to raise that amount, but the magnitude of the increase surprised most analysts, and sent a favorable message to shareholders.

Viacom also said it would increase its quarterly dividend to shareholders from 6 cents per share to 7 cents per share.

“This signals a more aggressive payout strategy than was anticipated by the market,” Morgan Stanley media analyst Richard Bilotti said in a research note.

The $8 billion authorization will allow Viacom to buy back about 13% of its outstanding shares.

Fulcrum Global Partners analyst Richard Greenfield said he expects Viacom to aggressively buy back shares during the next six months. He added that the size of buyback program indicates that Viacom will not make any major acquisitions in the near term, another possible catalyst for the stock.

Viacom rose 3.3% ($1.15) on Oct. 28 to $36.50, its highest level since July.

The surge clearly was owing to the buyback and dividend rather than financial results. The cable networks continued to perform well, but growth was offset by continued sluggishness in Viacom's radio and entertainment divisions.

Cable network revenue rose 14%, to $1.7 billion, led by a 16% increase in advertising revenues. The ad-revenue gain was driven mainly by 17% growth at MTV Networks.

Ancillary revenues were up 33% over the third quarter of 2003, reflecting higher Nickelodeon consumer-product-licensing revenues, higher home-video revenues — principally from Comedy Central's Chappelle's Show DVD — and higher foreign-syndication sales at Showtime. Operating income at Viacom's cable networks rose 13% to $691 million from $613 million in the previous-year quarter.