$5-Billion Westinghouse Bid for CBS Reportedly in Works

Westinghouse is trying to line up financing for a $5-billion purchase of CBS Inc., according to Wall Street sources, who say the Pittsburgh-based company is working with J.P. Morgan and is now trying to interest Chemical Bank in backing a deal.

Neither CBS nor Westinghouse would comment. While rumors that Westinghouse was interested in buying the network surfaced in April, some investors are taking this round more seriously because it appears that financing is being assembled.

Still, many on Wall Street are skeptical that Westinghouse can put together an attractive package, given its high debt level and the interest rates it would have to pay on any borrowings.

Westinghouse has nearly $3 billion in debt on its books and has been selling assets over the last year to reduce that amount. The prospect that the company might borrow an additional $5 billion caused one rating agency on Tuesday to put the company on credit watch. Standard & Poor’s said it would consider downgrading both CBS’ and Westinghouse’s credit ratings, which help determine borrowing rates, if they agreed to merge.

“It is not inconceivable that Westinghouse might do this,” said Ann M. Schwetje, an analyst at Smith Barney. “Broadcasting is one of their better businesses and accounts for 25% of its income. But with or without further asset sales, it would face major obstacles in financing, which would have to be done at junk rates.”

However, some analysts said Westinghouse could borrow at least half the $5 billion on the strength of CBS’ balance sheet. “A bank would lend them five times CBS’ operating cash flow, which is $500 million,” said one institutional investor.

No bid has formally been made, but Westinghouse is thought to have expressed an interest in making an $83-a-share bid, for $5.1 billion, to Laurence Tisch, who controls nearly 20% of CBS and is its chairman.

The two companies have been talking for the last year as part of an alliance they set up last July. Under the pact, Westinghouse agreed to affiliate its five Group W television stations with CBS under long-term contracts in exchange for air time on CBS’ own seven stations for shows that the two partners would develop and distribute together. Together, the partners control stations that reach 32% of the country, a solid syndication launching pad.

“The partners have quietly been putting a relationship in place, getting comfortable with each other,” said Ralph Gabbard, president of Gray Communications Systems Inc.’s broadcast group in Lexington, Ky., and head of the CBS affiliate board. “If they can pull this deal off, it would be good for CBS.”

In fact, the alliance is a deterrent to other studios that might be interested in CBS. A studio partner such as Walt Disney Co. or Turner Broadcasting would logically want to put their shows on CBS’ stations rather than fare developed by the partnership.