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CBS Agrees to Buyout Bid by Westinghouse : Entertainment: $5.4-billion merger would create biggest TV, radio empire. But the deal faces obstacles.

August 02, 1995|SALLIE HOFMEISTER and JANE HALL | TIMES STAFF WRITERS

NEW YORK — Just a day after the Walt Disney Co. announced that it would buy the nation's most successful television network, Westinghouse Electric Corp. stepped up on Tuesday with an offer to pay $5.4 billion in cash for CBS Inc., the only remaining independent network and the weakest of the Big Three.

The merger, already approved by both companies' boards, caps two weeks of speculation and would create the largest TV and radio station group in the country. It would put the Tiffany network back into the hands of broadcasters after nearly 10 years under investor Laurence A. Tisch. Tisch, who will not have a role in the new company, stands to make about $700 million on his 20% stake in CBS--on top of the hundreds of millions he has already withdrawn.

The new company, which would be called Westinghouse/CBS, would be run by Westinghouse Chairman Michael H. Jordan, who hinted Tuesday that the Pittsburgh, Pa.-based company would sell some industrial assets to concentrate on broadcasting. Together, CBS and Westinghouse own 15 television and 39 radio stations that reach about one-third of the country's listeners and viewers, more than either NBC or Capital Cities/ABC.

The combination is the clearest sign yet of how new federal rules governing broadcasters are reshaping the industry. The CBS/Westinghouse merger comes as lawmakers prepare to relax longstanding rules on media ownership: Today, a single company can control stations that reach up to 25% of the nation's viewers, but that limit may soon be raised to as much as 50%. For its part, Disney's proposed $19-billion acquisition of Capitol Cities/ABC Inc. was driven largely by the easing of restrictions on network ownership of television programming.

Under the agreement announced Tuesday, CBS stockholders would receive $81 a share, well above the $66 at which it was trading before word of the deal surfaced. But completion of the merger is far from certain. Regulatory approval could present obstacles because the combined company exceeds current station ownership limits. Westinghouse also is deeply in debt and still lacks more than $3 billion in bank financing needed to close the deal.

"There are some question marks," said Jeffrey Logsdon, an analyst at the Seidler Cos. in Los Angeles. "Westinghouse is making a defined corporate strategic decision. But it's a big, big move for them."

Unlike the highly praised Disney deal, analysts also believe a competing bidder could torpedo the Westinghouse bid.

Tisch dismissed the idea: "I've given my love to Mr. Jordan," he said in a rare light moment during an otherwise somber press conference at New York's Waldorf-Astoria Hotel.

The announcement was overshadowed by the lingering excitement in the entertainment industry and on Wall Street over the Disney/Cap Cities merger, which combines the leading studio and theme park operator with the most profitable network and television distributor.

Downbeat Mood

At CBS, the mood was less than upbeat. "Everyone is walking around feeling depressed, especially after Disney," said one CBS executive. "These guys from Westinghouse feel like small-town businessmen, and they're going to have to sell off so many things just to buy CBS. How is this positioning for the future?"

Disney adds impressive production and programming clout to Cap Cities' ability to deliver those products to customers. But the Westinghouse/CBS combination plays only on distribution strengths: the new company lacks the credentials in making the TV shows and movies that media analysts say are essential for taking advantage of its new reach.

What is more, Cap Cities enjoys more global scope than CBS, which is essentially a bare-bones network. Cap Cities/ABC commanded a price four times higher than CBS because it includes the most profitable network and stations, as well as cable networks with global customers and a host of trade magazines and newspapers.

Westinghouse, however, is arguably paying more for CBS based on the profitability of the two networks. Tisch has demanded at least $80 a share since he began shopping for a buyer in the last year.

The stock market on Tuesday continued to react favorably to the Disney deal, and also rewarded Westinghouse for coming forward with the anticipated offer. Disney shares rocketed $2.875 to a record $61.50, pulling Cap Cities shares up $3.25 to $119.50. CBS closed unchanged at $77.75, while Westinghouse shot up $1.25 to $14.875 in late trading.

Vague Vision

Jordan, who was brought in from Pepsico two years ago to turn around the ailing Westinghouse, was vague in outlining his vision for CBS. But he did say he might seek a strategic alliance in programming, possibly invest in cable networks and international television, and invigorate management of CBS stations as Westinghouse had with its own. He said there would be layoffs to reap savings, but did not say how many.

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