Viacom proposes CBS merger

Viacom Inc., which owns MTV and Paramount Pictures, has offered to buy CBS
Corp., one of the Big Three US television broadcasters, for $37 billion in
stock, the largest media transaction ever. The new company, which will
still be called Viacom, will be led by Sumner Redstone who will remain
Viacom's chairman and chief executive. CBS President and Chief Executive
Mel Karmazin will be president and chief operating officer. The deal is
part of what is expected to be a wave of consolidation in the TV industry
after last month's approval by the Federal Communications Commission of new
rules allowing companies to own two TV stations in the same market.
Viacom's massive holdings, which include Nickelodeon, theme parks, a
majority stake in video-rental chain Blockbuster Inc., cable television
network Showtime, and 50 percent of the UPN broadcast network, will be
combined with CBS' television station network, as well as its huge
collection of US radio stations and outdoor advertising properties to
create an entertainment giant that will rival Walt Disney Co. and Time
Warner Inc. The price tag of $37 billion is nearly twice the $19 billion
that Disney paid for the Capital Cities/ABC network in 1995, the current
record for a media deal. Viacom was created during the 1970s when the US
Justice Dept. forced CBS to divest itself of some of its programming
properties. The deal puts the Democrat Clinton Justice Dept. in the
position of approving the recombination of properties that were foreced to
separate by the Republican Nixon administration. It is possible that the
Justice Dept., which must review the proposed merger, will object to the
heavy concentration of programming properties. Karmazin said that the
combined CBS and Viacom TV station group will cover 40% of the U.S., above
the FCC's 35% limit. Karmazin said that Viacom and CBS will attempt to
change that limit, but they will divest or swap some stations if necessary
to close the deal. The deal will also give the combined companies a duopoly
position, that is, two TV stations, in six markets, but Karmazin said last
month's ruling by the FCC to allow duopolies makes it likely the pairings
will stand. The FCC will also have to decide whether to let the new Viacom
retain its 50% interest in TV network UPN alongside CBS. Current rules
forbid the Big Four networks (CBS, NBC, ABC and Fox) from owning a second
national network.