Viacom’s planned $2.3 billion cable TV system sale was dealt a potentially fatal blow as the Senate Finance Committee killed an FCC minority-media preference program upon which the proposed transaction is based.
The 17-year-old Federal Communications Commission program allows media companies to defer or avoid capital gains taxes if they sell their holdings to minorities.
The committee, chaired by Sen. Bob Packwood (R-Ore.), voted 12-8 on March 15 to backdate repeal of the FCC race-based preference program to Jan. 17, thus quashing the Viacom deal. By establishing the Jan. 17 effective date, lawmakers nullified Viacom’s Jan. 20 announcement of plans to unload its cable holdings to a minority-controlled partnership.
The bill now moves to the Senate floor, where observers say it is unlikely to be revived amid what is expected to be a major fight over the future of affirmative action programs in the U.S.
Packwood said he expects a “long and illuminating debate” on the Senate floor.
The Senate committee action threatens 18 other minority tax certificate deals pending at the FCC. (See related story, back page.)
Joining all 11 Republicans in mixing the FCC program and the Viacom transaction was Sen. Bill Bradley (D-N.J.), who called it a “dubious proposition” to allow the FCC to set tax policy.
The Senate vote represents a bitter loss for Viacom, which had been counting on the Packwood panel to rescue its transaction. Viacom had hired a bevy of lobbyists in recent months to help preserve its deal, including former Packwood aide Bill Diefenderfer and GOP lobbyist Michelle Laxalt.
In a statement, Viacom said it was “obviously disappointed to see the Senate Finance Committee craft tax policy on a retroactive basis. We believe that is eminently unfair.” The company said it is “still committed to selling our cable systems” and will consider other sale options if the full Senate doesn’t preserve its deal.
Under the proposal, Viacom would defer an estimated $640 million in taxes by selling its cable properties to a partnership controlled by black entrepreneur Frank Washington, a Sacramento-based cable operator who helped devise the FCC program while working at the agency in the late 1970s. Washington’s partners include cable giants Tele-Communications Inc. and Intermedia Partners.
The Senate vote mirrors action taken by the House of Representatives to ax both the FCC program and the Viacom deal. President Clinton has not weighed in.
Sen. Carol Mosley Braun (D-Ill.), a staunch supporter of the FCC program and the Viacom deal, hinted after the March 15 vote that she may try to filibuster the bill on the Senate floor. She complained it is “unfair for us to reach back and single out one transaction” for elimination.
Joe Flint in Los Angeles contributed to this report.