Senate Vote a Setback for Viacom Cable Sale : Broadcasting: Company may be forced to deal with Tele-Communications Inc., industry analysts predict.

A Senate panel voted Wednesday to abolish special tax breaks for businesses selling broadcast properties to minorities, a move likely to scuttle Viacom Inc.’s planned $2.3-billion sale of its cable systems.

The measure was tacked on to a bill to extend a popular 25% tax deduction for health insurance for the self-employed. The House passed similar legislation in February.

The bill still faces a vote on the Senate floor, where some Democrats have vowed to fight the provisions that aim to wipe out deals that were already in the works before now.

The controversy over the Federal Communications Commission’s 17-year-old minority-preference program has also sparked a heated debate about affirmative-action policies.

“This cements the glass ceiling,” Sen. Carol Moseley-Braun told reporters after the Senate Finance Committee voted on the legislation. “I think the program ought to be saved.”

The Illinois Democrat, the first African American woman elected to the Senate, vowed to introduce an amendment once the bill reaches the Senate floor.

After the vote, New York-based Viacom said it is considering a different transaction. It has said repeatedly that it would not proceed with the planned sale to a firm headed by Frank Washington, an African American media executive based in California, if Congress repealed the tax break.

“We have said all along that without this tax deferment, we would not move ahead with this transaction as currently structured, and we won’t,” Viacom said in a statement. “The transaction doesn’t make financial sense without a tax deferment.”

Industry analysts said the Senate committee vote in effect kills the deal.

“They will probably try to pursue the deal with another tax-advantaged strategy,” UBS Securities analyst Edward Hatch said.

Viacom may be forced to negotiate with Tele-Communications Inc., the nation’s largest cable operator and one of Washington’s major backers, since TCI is one of a handful of possible buyers.

Viacom might also spin off its cable systems to shareholders, who would get stock in the new cable company in a tax-free exchange for Viacom stock, analysts said.

The new company would take debt with it, polishing Viacom’s balance sheet and probably lifting its share price.

But Tim Pettee at Alliance Capital said Viacom might not get decent value in a spinoff since big cable groups such as TCI or Time Warner Inc. are out of favor on Wall Street.

Lawmakers have estimated Viacom could avoid about $500 million in taxes if the deal went through under the FCC program. Instead, Congress wants to use that money to fund part of the health insurance deduction for the self-employed.

Democrats on the panel tried unsuccessfully at Wednesday’s session to remove the retroactive component of the bill in an effort to save the 20 or so pending deals that would qualify for the FCC minority tax certificates.