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Viacom, Gulf & Western Discuss Merger

May 06, 1989|AL DELUGACH | Times Staff Writer

Television giant Viacom International and Gulf & Western, the owner of Paramount Pictures, have told industry analysts they are discussing a potential merger or other combination, and Viacom stock shot up $3 a share Friday to $52.

The flurry came as observers continued to await a boffo sequel to Gulf & Western's disclosure almost a month ago that it intends to transform itself from a conglomerate into an entertainment and publishing concern to be renamed Paramount Communications.

Both companies kept official silence Friday, but securities analysts reported that they had confirmation of preliminary talks from one side or the other.

Some sources said they believe that Viacom also has had talks in recent weeks with other parties, including MCA Inc., parent of Universal Pictures.

In the last month Viacom's stock has risen by more than 30% on the American Stock Exchange. It hit a new 52-week high of $53.25 Friday before dipping to its $52 close. Gulf & Western closed at $51.625, up 50 cents on the Big Board.

While most analysts said they couldn't assess the actual chances for a deal between Viacom and Gulf & Western, views diverged on what shape it might take.

Some subscribe to the position that Viacom's controlling stockholder, Sumner M. Redstone, enjoys his company too much to give up control, and therefore would prefer to sell some assets or go into a joint venture.

Others found it believable that Redstone would merge and find happiness with a major role in the resulting company or in the cash he would get for his 83% stake in his debt-laden company.

Most agreed that Viacom's assets would fit nicely with Gulf & Western's plans.

Viacom's jewels include pay-cable networks (Showtime/The Movie Channel, MTV, Nickelodeon, Video Hits One and one-third of Lifetime); broadcasting (five television and eight radio stations); distribution rights to network television hits ("Roseanne," "The Cosby Show" and "A Different World") and cable TV systems with about 1 million customers.

However, analyst Jeffrey Logsdon of Crowell Weedon & Co., Los Angeles brokers, and John Olds of Paul Kagen Associates, the entertainment research firm in Carmel, Calif., see little chance of an outright merger. Logsdon said Gulf & Western told him they have had "some preliminary kinds of discussions about certain assets with Viacom."

On the other hand, Andrew Wallach, entertainment analyst for Drexel Burnham Lambert, New York brokers, said: "We're in an environment where everybody has talked to everybody," and he figures the chances for a Viacom-Gulf & Western deal at 50-50 in the next 18 months.

If one occurs, he sees "overwhelming" chances that it will be a stock-for-stock merger like that of Time Inc. and Warner Communications. But Wallach said he believes that Redstone would want "significant control" over the merged entity.

Entertainment analyst Christine Jones of Bateman Eichler, Hill Richards in Los Angeles noted an interesting "corporate personality" factor in the negotiations. Redstone is a "very tough negotiator," she said, while Gulf & Western has a track record of not paying "substantial premiums" on acquisitions.

Gulf & Western's transformation also poses a possible dilemma for the firm. As a major step, the firm will peddle its financial services subsidiary, which is likely to bring in more than $3 billion to fuel an acquisition splurge. Jones noted that Gulf & Western may want to move quickly to spend the money--say, for Viacom, since the cash could attract unwanted takeover efforts.

Times staff writer Kathryn Harris contributed to this story.

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