CapCities/ABC Video Enterprises and DIC Animation City have confirmed a long-discussed joint venture to form a new entity, DIC Entertainment LP, to produce live-action and animated children’s programming.The deal will provide the network unit product to distribute in the international market, in conjunction with DIC’s overseas sales operation. The Burbank-based animation company, which produces such upcoming Saturday-morning shows as ABC’s “Sonic the Hedgehog,” CBS’ “Dennis the Menace” and the Fox Children’s Network’s “Where in the World Is Carmen Sandiego?” will continue to operate separately from the new company, which will also be headed by DIC prez Andy Heyward. Heyward exec producer Heyward will exec produce all programs and act as general partner, with CapCities as a limited partner. It was unclear whether any of the aforementioned shows or only future product would fall under the CapCities deal, and DIC officials declined comment beyond the announcement. DIC had vigorously denied earlier reports that the company was being sold to CapCities/ABC. The company was apparently reluctant to acknowledge the deal when word first leaked out, fearing the news would hamper efforts to sell programs to ABC’s competitors. DIC reportedly has been in talks with various parties over the past two years regarding an outright sale of the company, including CapCities and Polygram. In addition to the DIC arrangement giving CapCities a line into the children’s area, CapCities/ABC Video Enterprises — through its ABC Distribution Co. unit — also distributes programs from ABC Prods., documentary supplier ABC/Kane Intl. and New York-based Ultra Entertainment. The company also holds equity interests in three European production outfits: Germany’s Tele-Munchen, France’s Hamster Prods. and Tesauro S.A. of Spain. DIC operated under a heavy debt load before retiring a significant portion of that burden with the company’s principal lender, Prudential Insurance Co. of America, in April 1992. The CapCities/ABC deal gives DIC a deep-pocketed partner intent on producing and owning shows of value to the world market.