MCA-Viacom Case Hits Tax Snag

The preliminary settlement reached by MCA and Viacom over the control of USA Network could be derailed by unresolved tax issues, according to sources close to the negotiations. The two sides hope that a final settlement can be agreed on before a trial is scheduled to resume over the matter on Monday in Delaware.

The court postponed the trial after five days to allow the parties to finish negotiating an agreement under which Viacom Inc. would agree to pay $1.45 billion for the half-interest owned by MCA Inc. in USA Network, giving it full control of the cable channel. MCA would also get full control of the Sci-Fi Channel, bringing the value of the deal to $1.7 billion.

MCA sued Viacom in April, charging that its start-up of a new channel called TV Land violated the terms of its 50-50 partnership in USA Network. Under that agreement, neither partner can start a new network without triggering a buyout option in the partnership.

It is unclear what tax snags had developed. Both companies are looking for a structure that would minimize the capital gains tax that would result from a sale of the USA Network or from dissolving the 15-year-old partnership.

The Delaware Chancery Court gave the parties an extension until Monday to reach a settlement. Originally they were to have returned to court on Thursday.

The trial will resume if talks break off, although sources said they remain confident of an out-of-court resolution.