As reported earlier, executives from both companies spent the weekend hammering out details of a deal that calls for Viacom to buy CBS in a stock transaction.
Under terms of the agreement, CBS shareholders will receive 1.085 shares of Viacom Class B shares for each share of CBS. At Viacom's September 3, 1999, closing price of $45.06 per share, CBS shareholders will receive $48.89 per CBS share.
The deal, which has been the object of speculation in the investment community and news media, raises doubts about the future of Viacom's struggling UPN television network, since recently relaxed federal regulations still prohibit one company from owning two networks.
In addition to owning the CBS Television Network, the new company will include cable networks such as MTV, Nickelodeon, VH1, TNN, CMT, MTV2, TV Land, Home Team Sports, and Midwest Sports Channel; pay channels Showtime, the Movie Channel, and FLIX; and interests in Comedy Central, Noggin, the Sundance Channel, and significant cable programming operations worldwide.
The media giant also will include Paramount Pictures, a powerhouse in theatrical motion pictures.
"The new company's opportunities for growth over the Internet are also excellent," Mel Karmazin, president and chief operating officer of the new company, said in a statement.
"As you know, we have been dynamically expanding in new media for the past year or so, adding the CBS brand to some of the most visible sites on the Web in financial news, sports, entertainment, and e-commerce, among others. Viacom has its own growing Internet presence in a variety of successful Web sites, most notably MTV.com and Nick.com, which will join with our growing portfolio of Internet concerns," he added.
Revenue for the second quarter from the company's Internet operations more than doubled to $5.2 million, reflecting increased license fees and higher ad revenue.
Karmazin said during a press conference that the merged company will own TV stations in the top ten markets in the United States.
But the cumulative audience from both companies could pit the new company against regulatory issues.
Too big a piece of the pie?
A Federal Communications Commission regulation limits companies from owning stations that cover more than 35 percent of the U.S. TV market. But with the merger, the combined TV stations owned by both companies will give the new company a reach of 41 percent of U.S. households.
This means the newly merged company may have to shed ownership of some of its local stations to comply with FCC regulations.
In addition, industry analysts say Viacom will have to part with its stake in the UPN TV network to overcome another regulatory hurdle. The FCC prohibits a company from owning two TV networks when one is rated in the top four. Viacom owns 50 percent of UPN, a joint venture with Chris-Craft.
Karmazin and Redstone said during the press conference that they will fly to Washington tomorrow to meet with regulators.
"This merger will take place, and it will be in compliance with the rules," Karmazin said.
Ironically, the deal is a bit of a reunion of the two companies. The FCC, after ruling that a network couldn't own a stake in shows they broadcast as well as syndicate reruns to local stations, made CBS sell Viacom as a program syndication company in 1970. The commission later eased that restriction.
James Goss, an analyst with Barrington Research Associates, said the merger was widely anticipated and that the fusion finally came after leadership of the new companies was ironed out.
The barrier to the deal "was that both companies have competent and talented people at the top," he said. "They seemed to have struck something that's workable. With this merger, both top executives will be active in leading the company."
The new company, which will be called Viacom, will be led by Sumner Redstone, who will remain chairman and chief executive. Karmazin will become president and chief operating officer. All operations of the combined company will report to Karmazin.
National Amusements, a closely held corporation that operates approximately 1,300 motion picture screens in the United States, the United Kingdom, and South America, is the parent company of Viacom.
The powerful brands of the two companies--from the CBS Television Network, CBS News, and CBS Sports, to MTV, VH1, Nickelodeon, and Paramount--will allow the company to establish and maintain the most visible Internet strategy in the media business, Karmazin added.
Bloomberg and News.com's Jim Hu contributed to this report.