Sumner and Mel set pre-nup

Karmazin heir apparent as Viacom, CBS merge to create $70 bil giant

NEW YORK — Viacom Inc. and CBS Corp. execs huddled in meetings all through the long holiday weekend hammering out details of a deal that calls for Viacom to buy CBS, most likely for stock, creating an entertainment giant with a market capitalization pushing $70 billion.

An agreement, which would most likely be billed as a merger of equals, could be announced this week, possibly as early as today. According to a West Coast-based entertainment industry source, CBS chief Mel Karmazin would receive a management contract with the newly combined company, becoming the heir apparent of Viacom Chairman Sumner Redstone.

Such a deal would call into question the future of the struggling UPN network and would marry a host of powerful assets, like MTV, Paramount and Simon & Schuster publishers with the CBS network and stations, radio and outdoor advertising.

Redstone, 76, would probably keep voting control of the new entity.

At $35.5 billion — based on Friday’s closing stock price — CBS’ market cap is slightly larger than Viacom’s. Financial details of a possible transaction were hazy, but sources said a sale would probably not put much, if any, premium on CBS’ current share price, which has run up dramatically in recent days on merger speculation.

Viacom and CBS spokesmen didn’t return telephone calls over the long weekend.

Still tentative

Sources cautioned that the talks could still stall or break off altogether, both for strategic considerations and given the well-known feistiness of the two principals, Redstone and Karmazin. The personalities involved, in fact, had led many industry players and Wall Streeters to speculate that a full-blown merger was unlikely as neither man wanted to report to the other.

Talks between the two companies started weeks ago as a simple station deal, triggered by an FCC vote August 5 to relax restrictions on station ownership. CBS owns 15 stations and Viacom 19, with the two groups overlapping in five markets.

The FCC decided to allow duopoly, owning two stations in the same market, which sparked a flurry of merger talk among many station owners. However, some of the Viacom/CBS stations would have to be sold to keep the combined company under the FCC’s national TV coverage cap of 35%.

Viacom stations are all affiliates of UPN, the network it owns jointly with Chris-Craft, another station group. FCC rules still prohibit one company from owning two TV networks, so it’s not clear where that leaves UPN. Analysts speculated that the young network could be rebranded, possibly becoming a “CBS-2.” The UPN factor also means that Chris-Craft could be drawn into a Viacom/CBS deal at some point.

Corporate giant

Combined, the two companies would have revenues of some $19 billion and a vast array of holdings including Paramount Pictures, MTV Networks — including MTV, VH1 and Nickelodeon — and the CBS network and stations. Television production venues would include Paramount and Spelling, CBS and King World, a leading supplier of syndicated fare that CBS agreed to acquire in April. That deal is expected to close officially today, sources said.

CBS also owns a huge radio station and outdoor advertising group through Karmazin’s original company, Infinity Broadcasting, which CBS spun off into a separate, publicly traded company late last year.

With such a span, a combined Viacom/CBS could replace Time Warner as the “bellwether” entertainment company, one analyst noted, anticipating cash flow growth of 20% or more and a host of synergies among its various businesses.

Viacom itself was spun out of CBS in the early 1970s after federal antitrust laws were put in place limiting the amount of programming that networks could own. Viacom was mainly a programming library back then. If the merger is completed, CBS would be reunited with such hits as “I Love Lucy,” “The Andy Griffith Show,” “Green Acres” and others.

(Cynthia Littleton in Los Angeles contributed to this report.)