Company Town : Disney Gets Government’s Nod for Takeover of Cap Cities / ABC

Walt Disney Co. won conditional federal approval Thursday for its $19-billion takeover of Capital Cities/ABC Inc., clearing the way for creation of the nation’s largest entertainment company--and a major TV network that many in Hollywood fear will be fed increasingly by its studio parent company to the exclusion of outside suppliers.

Disney said it will take control of Capital Cities after the market closes today, and expects shares of the newly merged company to begin trading Monday. Capital Cities’ stockholders have until March 7 to decide whether to trade in their shares for cash or stock in the new company.

Disney executives, returning Thursday from a three-day retreat in Phoenix with top Capital Cities managers, said they plan to review each of the business segments in detail over the next month before determining how to integrate the two companies.

But rumors of a restructuring have created anxieties at the companies since the merger announcement in July. Those doing business with the network say executives have been distracted and that decision making has slowed. ABC has been overtaken in the ratings this season and has lost key sports programming to NBC.

Many Hollywood and network executives worry about the control the new owners will exert over the fall schedule, despite Disney Chairman Michael Eisner’s insistence that ABC will continue to buy from all suppliers. The studio already plans to take over ABC’s Saturday morning block and will air Disney movies on Saturday nights, though the company lacks recent experience in those time slots.

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In Washington, objections to the merger were few and approval came quickly. In contrast, Time Warner Inc.’s proposed acquisition of Turner Broadcasting System Inc., announced roughly a month after Disney’s, is unlikely to close before the third quarter, if at all, as the Justice Department sifts through roomfuls of documents evaluating antitrust questions.

As a condition of its approval, the Federal Communications Commission requires Disney to sell KCAL, one of the two TV stations in Los Angeles it will control. The agency will give Disney only six months to complete the sale, compared with the year required by the Justice Department last month as a condition of its approval.

Laws prevent the ownership of more than two stations in a single market; Disney will retain Capital Cities’ KABC Channel 7 in Los Angeles.

Disney will also be required by the FCC to sell either the radio station or the newspaper Capital Cities owns in Fort Worth and Detroit. Laws prevent the cross-ownership of newspapers and radio stations in single markets, and the agency granted Disney only a temporary one-year waiver of those rules rather than the permanent waiver enjoyed by Capital Cities.

Disney said it hopes to keep all the properties as the agency reconsiders the cross-ownership rules this year.

It is unclear how Disney will restructure to accommodate Capital Cities, which will become a wholly owned subsidiary based in New York, and Disney executives would not comment on company plans. But sources say Disney’s television distribution, namely its syndication and international sales arms, could move under Capital Cities chief Robert Iger. Iger will oversee the Disney Channel, which is being combined with Capital Cities’ cable interests, other than ESPN, under former Nickelodeon head Geraldine Laybourne.

ABC’s in-house production, scaled back over the last year in favor of joint ventures with the emerging studios of Brillstein/Grey and DreamWorks SKG, could be melded under Disney’s TV studio, although those partnerships would continue reporting to Iger, sources say.

The sources say the role of two top executives is less clear because of the merger: David Westin, president of the ABC network, and Dennis Hightower, the head of Disney Television whose background is in consumer products.

Some sources believe the management of Disney Television is stretched thin just as the demands are poised to soar. Hightower’s second-in-command, Dean Valentine, president of network television and animation, has yet to replace the top two animation managers who left for DreamWorks months ago, and only last month hired a new head of network TV to lighten his load.

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At the same time, Valentine is scrambling to ramp up production to supply 17 Saturday night movies to ABC in the coming season, up from the four the group makes for TV now. Critics say the initial slate of Disney programs for Saturday morning is little more than filler.

At the network, tensions have run high since the appointment to the top ranks last fall of Michael Rosenfeld, a former agent from Creative Artists Agency. ABC executives saw his arrival as the handiwork of new Disney President Michael Ovitz, the CAA co-founder who sources say has made television a top priority.

“Everyone here is anxious that Ovitz will move more of his own people into the network,” one ABC executive said.

The declining position of ABC could make that more likely. In recent months, the network lost both the Olympics and baseball to NBC, leaving it with only Monday night and college football as A-list sporting events on which to promote other network shows.

“The transition has thrown everyone out of sync,” said one television executive.

The network’s lead in the ratings has eroded to a sturdy No. 2. Many sources say ABC’s lack of a hit in two years dims its chances for an immediate comeback.

Times staff writer Ralph Vartabedian in Washington contributed to this report.