Paramount, Viacom Reported Near Merger Agreement : Entertainment: The $16-billion deal would create one of the biggest firms in the industry. Several unresolved issues remain.

Paramount Communications Inc. and Viacom Inc. appear to be on the verge of a $16-billion merger agreement that would create one of the world’s biggest entertainment companies if remaining issues can be resolved in the next two days, sources said.

Sources characterized the issues dividing the two companies as minor. One knowledgeable executive said the Viacom board is on standby notice to convene Sunday morning if Sumner Redstone, the chairman and 86%-owner of Viacom, reaches a deal to his liking.

Although the two companies have held serious talks in the past, this is the first time a merger proposal has progressed this far, sources said. One industry executive credited Paramount Chairman Martin S. Davis for reviving the talks over the Labor Day weekend, using prominent Manhattan attorney Arthur Liman as his emissary.

The Paramount board held a routinely scheduled meeting Thursday morning, where outsiders had expected some discussion of a merger proposal to take place. One industry source said he was told that Davis “laid out the plan and the Paramount board evidently said OK” after directors made suggestions for some “minor changes.” The source suggested, however, that “price (remains) a little bit of an issue.”

While Liman, Davis and Redstone could not be reached Thursday and company spokesmen declined to comment, the rumors spurred trading in the stock of both companies. Viacom jumped $1.375 to close at $65.625 on the Amex, while Paramount rose $1.875 to $56.875 on the New York Stock Exchange.

As reported last week by The Times, talks have occurred intermittently since a near-deal collapsed in early July over price. At that time, Paramount apparently objected to the terms as too rich for Viacom, but Viacom’s stock has since soared 29%. Redstone--ever a believer in his company--continued buying shares in late July and early August, according to documents filed with the Securities and Exchange Commission.

While Viacom is the lesser-known company, it has actually eclipsed Paramount in its marketplace value, due to the premium Wall Street places on its MTV Networks and other cable TV properties. Although Viacom is only the 13th-largest cable system operator, its systems are valued at nearly $2.5 billion by some analysts.

Paramount’s major assets are Paramount Pictures, which includes the prestigious movie studio and television producer, a huge publishing operation led by Simon & Schuster and Madison Square Garden.

Some investors speculated Thursday that Davis has felt increased pressure to complete a transforming deal because one of Paramount’s potential partners--Turner Broadcasting System--took itself out of circulation by agreeing last month to acquire two Hollywood production companies.

Davis also was aware of speculation that his inaction could make Paramount the target of an unsolicited offer. Sources contend that Tele-Communications Inc., the giant cable television company, has long hankered after Paramount. According to some sources, TCI Chairman John Malone was eager to see control of Paramount pass to a TCI ally--namely, QVC Network Inc., now run by former Paramount studio Chairman Barry Diller.

“One way or another, (Paramount) is going,” predicted one Wall Street source. “If Sumner doesn’t get it, Barry will.”

Additional pressure is probably coming from the Paramount board, one longtime investor said, because of investors’ dissatisfaction with smaller acquisitions of theme parks and TV stations that have consumed Paramount’s cash without creating a more significant company.

A merger would be accomplished primarily through an exchange of stock, although some cash is also expected to be paid.

Sources said they believe that a corporate management structure has been resolved, with Redstone in control but with Davis retaining an important title, and Paramount President Stanley Jaffe probably reporting to current Viacom Chief Executive Frank Biondi Jr.

Redstone would wind up owning nearly 40% of the combined companies, analysts estimated. For the 70-year-old Redstone, a merger would crown his other accomplishments.

After World War II, he took over the management of his family’s New England movie theater business, and he is now worth a reported $3.8 billion.