Viacom International agreed Wednesday to be acquired by Boston movie theater mogul Sumner M. Redstone's National Amusements Inc. for cash and stock worth $3.4 billion. This brought to a dramatic close a four-month takeover battle with a management-led investor group that appeared to have the deal sewn up last October.
Capping an all-night board meeting here, directors of the New York cable, broadcast and entertainment concern said they have signed a definitive agreement to accept Redstone's offer over the $3.23-billion bid from a competing investor group, which included eight top Viacom executives, three investment banks and an insurance company. Each side had sweetened its offer four times.
Viacom, which was created when it was spun off from CBS Inc. 15 years ago, owns five television and eight radio stations; a large collection of cable TV properties; such cable networks as MTV Networks, Showtime-The Movie Channel and Nickelodeon, and the rerun rights to a huge library of television programs, including "The Cosby Show" and "I Love Lucy."
"This is finally it," Redstone said Wednesday morning after emerging from the around-the-clock session. "I feel like I've been in a war zone."
The acquisition still must win shareholder approval, and approval by the Federal Communications Commission to transfer broadcast licenses. Some analysts said there is also a chance that the deal could encounter financing problems.
But most described that possibility as remote.
When the deal is consummated, Redstone will also become the largest shareholder in Orion Pictures Corp. He already owns 6.42% of that film company, and Viacom holds another 14.6%. That 21% stake will outstrip Metromedia Inc.'s 9.2% stake in Orion, and the 8.2% stake owned by Orion management.
Some analysts predicted that Redstone may continue to accumulate Orion stock with an eye to gaining full control of that New York-based company.
"It's a shocker," said one analyst, Kenneth F. Berents of Legg Mason, Wood Walker in Baltimore. "It was a war of attrition, and Redstone finally wore them down."
Arbitrageurs, who study takeover bids, had estimated the value of Redstone's final bid at about $53 a share, compared to a management group's that they estimated at about $51 a share. The price includes $42.75 a share in cash, $7.75 a share in preferred stock, and a total equity stake in a newly formed acquiring company of 14.7%
Analysts said Redstone had prevailed over the rival bid because he was able to increase the cash portion of the bid in the late rounds, while the rivals could only increase the "paper" portions of their bid. Redstone began putting pressure on the investor group last October, when he began accumulating stock and declaring publicly that the management group's $2.97-billion offer was insufficient.
He already held a 19.6% stake in Viacom by the time he made his first formal offer last month.
The management-led investor group included Viacom Chief Executive Terrence A. Elkes; investment bankers Drexel Burnham Lambert, First Boston and Donaldson Lufkin Jenrette Securities, and Equitable Life Assurance Society. In addition to Elkes, the group included seven senior Viacom executives.
About $2.3 billion of Redstone's financing will come in bank borrowings, in a syndication to be arranged by Bank of America. Interest costs on those borrowings will be several percentage points lower than the interest that the management-led group would have had to pay on the high-risk, high-yield "junk bonds" it planned to sell to finance the leveraged buyout, analysts noted.
"He could offer more, because his interest cost could be a couple of points less," one arbitrageur said.
Some analysts said the management-led group could have won the battle, but for their inability to close the deal before now. Also an obstacle was the Wall Street insider-trading scandal, which temporarily depressed the junk bond market last November and December.
"They snatched defeat from the jaws of victory," analyst Berents said.
Redstone insisted in an interview that he hopes to keep all pieces of the company. "I will do everything I can to preserve what we've got here," he said.
But analysts speculated that the purchase price is so high that he may be forced to sell off some of the company's properties. "He may find skeletons in the closet that make Viacom look not quite so good as he thought," said John Tinker of Bear, Stearns in New York.
Paul Kagan, an analyst in Carmel, Calif., who specializes in the cable and entertainment industries, speculated that if Redstone does decide to sell properties, he might first consider selling broadcast stations, and the cable networks, including Showtime-The Movie Channel, which has recently suffered disappointing results.
"There's no question that they made large commitments with the studios (to buy) their movies, and without substantial subscriber growth that will not be a great business," Kagan said.