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Viacom's Next Mistake

Before yesterday's revelation that Viacom (NYSE: VIA  ) is considering splitting the company in two, it already had divestiture on its mind. Last month it announced that it considered its five Paramount branded amusement parks to be non-core assets and was weighing offers for someone to take them off its hands. It was telling that the former executive who once ran the division quickly teamed up with investment firms to arrange a buyout.

He realizes what Viacom doesn't. The company's North American parks should very well be the core of any entertainment conglomerate. With more than 10 million guests clicking through the parks' turnstiles last year, why would a media giant not relish the captive audience as a way to funnel them to Viacom's broadcasting properties like CBS, MTV, and Nickelodeon?

I don't like this at all. From spinning off Blockbuster (NYSE: BBI  ) , after pilfering its balance sheet, to its desire to unload its chain of movie theaters, a company that needs to stay in contact with mainstream audiences is hacking away at these branches precisely when it should be embracing them.

If Viacom has failed to use these magnetic limbs appropriately, it can only blame itself. Yes, it stinks that its shares are trading lower than they did one, three, and five years ago. But landing a billion bucks to shore up its finances would come at the expense of relinquishing some great assets. And I'm not just saying that from a distance. In the summer of 2003, I went to three of the company's five parks and liked what I saw, but recognized that Paramount -- like just about every other amusement park chain -- is simply scratching the surface in synergistic potential.

Besides, who else is going to step up and start a bidding war here? Disney (NYSE: DIS  ) prefers to build from the ground up, though it would certainly be an interesting way for Bob Iger to make a splash beyond his broadcasting stronghold. Six Flags (NYSE: PKS  ) , which prefers to build from the ground down -- until it hits six feet -- is too buried in debt to binge. General Electric (NYSE: GE  ) inherited the two fastest-growing theme parks last year yet its reluctance to build on that success by committing to new major rides makes me think it is more likely to be a seller than a buyer. That leaves Anheuser-Busch (NYSE: BUD  ) and Cedar Fair (NYSE: FUN  ) .

While Cedar Fair would normally be good to scoop up at least one or two of the properties, the operator is still floored by the abysmal performance at Geauga Lake, which it acquired last year. In handicapping the odds with Screamscape's Lance Hart earlier this week, it was clear he would also write off Anheuser-Busch because it has not shown an interest in expanding its amusement park empire in ages.

Unless an overseas giant wants in -- which is always possible given the weak dollar -- that means that Viacom will be stuck with folks looking to take the parks private and that would be a mistake. Perhaps Don Snyder and Microsoft's (Nasdaq: MSFT  ) Bill Gates -- miffed over their inability to rattle Six Flags out of its slumber -- may want a shot here. Yet, more than likely, it will be investment firms that will only dust the properties off, skim a generous cut off the top, and then take the chain public again at a premium. Viacom can do better than that. Even if it means spinning off a minority stake in the chain to generate some greenery for the parent, Viacom shouldn't make the huge mistake of kissing off its amusement parks entirely.

Any company that relies on sponsors and consumers as its lifeblood would be an idiot to dump properties in which folks are willing to line up and wait for something to happen. If it doesn't see that, I'd better see if I can locate a good collection tray.

Some recent amusement park stories:

Longtime Fool contributor Rick Munarriz took the family to Paramount's Carowinds, King's Island, and King's Dominion parks in June of 2003. He owns shares in Disney and units in Cedar Fair. The Foolhas a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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