BHC Sues UPN Partner Viacom Over CBS Deal

A high-stakes war heated up Tuesday between the 50-50 owners of the UPN television network when BHC Communications Inc. filed a lawsuit against its partner, Viacom Inc., to block Viacom’s planned merger with CBS Corp.

In the lawsuit, filed in New York state Supreme Court, BHC claims that a 1997 pact signed by the partners prevents either from owning “any interest, financial or otherwise” in “any competing network,” including CBS, for a period of four years ending in January 2001.

BHC is asking the court for a permanent injunction that would terminate Viacom’s proposed $36-billion acquisition of CBS, which now awaits federal approval and is expected to close by April.

BHC, which is a subsidiary of Chris-Craft Industries Inc., filed the lawsuit less than a week after Viacom triggered a so-called buy-sell provision in the partnership. Under that provision, BHC now has 45 days to either sell its 50% stake in the money-losing UPN to Viacom for $5 million or buy Viacom’s half for the same price.

In its suit, BHC also seeks to block Viacom’s use of the buy-sell provision, claiming that the company is using it “to cure its previous breach” of the partnership agreement.

Many analysts see the developments as negotiating ploys in buyout talks between the two parties. Shortly after the CBS-Viacom deal was announced on Labor Day, negotiations began to bring BHC into the deal.

Sources say CBS chief Mel Karmazin likes the idea of offsetting the CBS network, which reaches an older audience, with one that reaches younger viewers such as UPN, and is even more interested in owning Chris-Craft’s 10 TV stations. That would allow CBS-Viacom to take advantage of new laws allowing owners to control two television stations in a market, giving the combined companies dual ownership in 12 markets with the Chris-Craft stations.

Sources say talks broke down over price: Herbert Siegel, who controls Chris-Craft, is asking $100 a share for the company for a total of nearly $4 billion, while Viacom-CBS has been willing to pay no more than $82 a share.

Chris-Craft stock rose $1.62 on Tuesday, closing at $75.31, while Viacom jumped $3.12 to $63. Both stocks trade on the New York Stock Exchange.

Since forming UPN in 1994 to provide programming for their respective station groups, Viacom and BHC have invested a combined $800 million in the network, which is years away from breaking even.

UPN has struggled in the ratings in part, affiliates say, because of the conflicting agendas and management bottleneck resulting from the joint ownership.

The network, which airs “Moesha,” “The Parkers” and “Star Trek: Voyager,” has improved in the ratings this season after the addition of the popular World Wrestling Federation’s “WWF Smackdown.”

In a statement, Viacom and CBS said the BHC lawsuit “is transparently without merit and will have no impact on the timing of Viacom’s planned merger with CBS.”

Though the CBS-Viacom merger has not closed, BHC claims in the lawsuit that the merger agreement alone “compromises” the partnership pact and Viacom’s “undivided loyalty to the network.”

BHC further states that the partnership agreement provides that either partner may pursue another network only if “the full interest” is “offered to the partnership.” BHC also claims in the suit that Viacom “never offered any interest in CBS to UPN or to BHC” and that Viacom gave no prior notice to BHC of its intent to acquire CBS.

“To the contrary, when BHC asked Viacom about rumors of such an acquisition, Viacom assured BHC that such a matter was not being considered,” according to the lawsuit.