Viacom International Gets $2.7-Billion Proposal for Management-Led Buyout

A management-led investor group on Tuesday proposed a $2.7-billion leveraged buyout of Viacom International, the cable, broadcast and entertainment firm that has spent more than a year dodging real and rumored takeover threats.

The investor group is led by Terrence A. Elkes, Viacom’s president and chief executive, and also includes Equitable Life Assurance Society and the investment banking firms First Boston, Drexel Burnham Lambert and Donaldson, Lufkin & Jenrette Securities. They valued their offer at $40.50 a share, including $37 a share in cash and a fractional share of preferred stock that the group valued at $3.50.

A source close to Viacom said the move was “really forced by the continuing threat of a takeover” to the company. “These threats have become such a distraction that management just can’t keep their attention on running the show.”

Decision in Two Weeks

The investor group’s offer will be considered by a committee made up of Viacom’s eight outside directors; the group is expected to reach a decision within two weeks.

In heavy trading of 3.36 million shares on Tuesday, Viacom stock rose to $40.375, up $5.125.

The investor group declined to disclose the names of other executives involved in the deal or what stake in the new company the managers and companies will have. In a leveraged buyout, a purchasing group buys a company from its shareholders by pledging its assets as collateral, intending to repay borrowings with future operating income.

Viacom, the 10th-largest operator of cable systems in the United States, owns five television and eight radio stations, TV programming services including the rock-video channel MTV and Showtime/The Movie Channel, and the syndication rights for television properties including the top-rated “Cosby Show” and the classic series “The Honeymooners.”

The company’s assets have gained increasing luster as broadcast and cable properties have generally grown in value over the past two years. And as its stock price has failed to keep up with that increasing value, the threat of a takeover has also grown.

Regarded as Greenmail

Last June, Viacom paid about $260 million to repurchase a 17% stake held by raider Carl C. Icahn in a buyout that was widely considered greenmail. A Boston-area investor group led by National Amusement Corp. of Dedham, Mass., a movie-house chain that has been accumulating stock since last June, disclosed last Friday that it had increased its stake to 8.57%.

Sumner M. Redstone, National Amusement’s chairman, was unavailable for comment on Tuesday.

The investor group’s bid opened the possibility that another bidder might be flushed out, some analysts said. But others were skeptical, noting that the investor group already included some of the heavy-hitting investment banks that other bidders might have wanted to retain to raise money for a counteroffer.

“They’ve been clever here in tying up all the desirable dance partners,” said Mark Riely, analyst with the F. Eberstadt investment firm in New York.

And while Viacom has been discussed as a merger target for companies owning movie studios, several of those firms have business ties with Viacom that they would presumably be reluctant to disrupt with an unfriendly offer, said Mara Balsbaugh, analyst with Smith Barney, Harris Upham.

Warner Communications, for example, uses Viacom’s Showtime/Movie Channel pay-TV programming services on its cable systems, while Walt Disney’s pay TV service is carried on most Viacom cable operations, she said.

Some analysts said the investors’ price is not overly generous in light of what many analysts think the company will be earning in the next several years. They expect Viacom’s profits to get a sharp boost from the expected growth in their broadcast stations’ revenues, expected growth in pay-TV revenue and the syndication rights for the Cosby show.

Some analysts have predicted that the Cosby show alone will add about $300 million to Viacom revenue over the next several years when syndication rights are sold.

Kenneth Berents, analyst with Legg Mason Wood Walker in Baltimore, said the group was wise to propose a buyout at a time when a generally depressed market would make the offer appear generous.

Warner Communications, which holds about 4.5 million Viacom warrants, would receive about $19 million if the leveraged buyout occurs, Warner Communications Chairman Steven J. Ross told shareholders Tuesday.

In a brief interview following Warner’s annual meeting in Beverly Hills, Ross said Warner would reap a $10-million profit from those warrants if the Viacom buyout takes place.

The $2.7-billion price includes the cost of refinancing Viacom’s outstanding debt, the investors said in a statement. They have arranged for a $1.5-billion revolving bank credit line, and expect to receive another $825 million from Donaldson, Lufkin, First Boston and Drexel Burham Lambert.

The three investment houses said they are “highly confident” that they can raise the money through the sale of debt and equity securities.

Times staff writer Kathryn Harris in Los Angeles contributed to this story. VIACOM INTERNATIONAL AT A GLANCE The diversified media and entertainment company has grown steadily in recent years. Nearly half of its revenues come from cable-TV operations, with the remainder coming mostly from broadcasting (it owns five network-affiliated stations) and program distribution (including the top-rated “Cosby Show” and the classic “Honeymooners.”) Company also owns Showtime/The Movie Channel and MTV Networks.

Year ended Dec. 31 1985 1984 1983 In millions Revenues $444 $320 $316 Net income 37 30.6 28.1

6 mo. ended June 30 In millions Revenues $439.5 $172.9 -- Net income (loss) (13.9) 15.7 --

Assets: $394 million

Shares outstanding: 39.75 million

12 mo. price range: $20.875 - $40.375

Tuesday close (NYSE): $40.375, up $5.125