No Internet Stock for Viacom
Sumner Redstone, chairman and chief executive of Viacom Inc., indicated Wednesday he would not be interested in taking the stock of an Internet company in a deal such as the $141-billion transaction announced Monday by Time Warner Inc. and America Online Inc.
In a question-and-answer period with reporters following a keynote speech Wednesday to local business leaders at Town Hall Los Angeles, Redstone said he might consider a merger of his entertainment giant with another company, although with the proposed merger with CBS Corp., Viacom’s “got about everything we want, except music.”
Since the Time Warner--AOL announcement, speculation has centered on Yahoo buying an entertainment company such as Walt Disney Co. or Viacom.
“As far as big deals go, who knows,” said Redstone, 76, who now controls 60% of Viacom and would retain control after completion of the deal with CBS, which he said Wednesday could close as early as March. “But it wouldn’t be an Internet company. . . . There are lots of problems with valuations.”
Indeed, AOL’s stock has fallen 19% since agreeing to purchase Time Warner in an all-stock deal, raising the possibility the transaction could fall apart from lack of investor support. Many AOL investors are interested only in a highflying Internet play, and some are bailing out because of concerns that the company would now be valued more like a media company. The value of the deal to Time Warner shareholders has declined as a result of AOL’s fall.
In a wide-ranging interview at The Times following the luncheon at the Beverly Hills Hotel, Redstone would not specify which companies he would consider pairing up with, but when asked if he would take the stock of Microsoft, he said “no comment.”
He suggested that others besides Internet companies had a need for Viacom’s content.
Redstone acknowledged that Viacom held “exploratory conversations” with AOL this summer, which he characterized as “casual,” but said he was never personally involved. One source said Viacom was AOL President Robert Pittman’s first choice as an acquisition. Redstone said he had never considered the combination of an Internet and a content company and was surprised by the AOL-Time Warner transaction.
He said a big deal didn’t necessarily mean he would have to give up control. “I’m a control freak, but I am not convinced that it would be necessary to relinquish control,” Redstone said.
Despite speculation that a deal has stalled, Redstone confirmed that negotiations are continuing between Viacom and Chris-Craft Industries Inc., which owns TV stations and is Viacom’s 50-50 partner in UPN. The merger of Viacom and CBS was driven by new federal duopoly rules that allow companies to own two TV stations in certain markets. Buying Chris-Craft would give CBS and Viacom, which together have two stations in six markets, duopolies in New York and Los Angeles as well as other cities.
Redstone said Viacom could swap its own and Chris-Craft’s stations with other broadcasters to achieve duopolies in other markets, but would ultimately like regulators to relax ownership caps that limit the number of stations one entity can control.
He also said there was a good chance that federal authorities would allow the company to keep UPN despite rules preventing a company from owning two broadcast networks. Redstone said UPN would otherwise “go away” because no buyer would be willing to pick up its $150 million in losses.
He acknowledged that the advertising potential of the new CBS-Viacom company, which would have $11 billion in billings--twice as much as that of any other entertainment company--was what sold him on the merger. “We can reach every demographic,” said Redstone, using the phrase “cradle to cane” to refer to Viacom’s reach with children through Nickelodeon, with teenagers through MTV, with young adults through VH1 and UPN, and now with older viewers through CBS.
Despite advertisers’ reluctance to pay premiums for reaching older audiences, Redstone said the company is getting the high sign from cable operators for the older-skewing cable channel it is developing.
He said he didn’t anticipate that any major sale would be mandated by federal regulators in exchange for approving the merger, despite concern within Hollywood that the alliance would give the company control of an estimated 70% of the syndicated television time slots. The merger would give the company 16 shows in syndication, including such juggernauts as Oprah Winfrey’s talk show, “Wheel of Fortune,” “Jeopardy” and “Judge Judy.”
He said the company would not part with Blockbuster because in a spinoff to the public, the retailer would fetch far less than its cash flow would be valued as part of Viacom. “We’ll get a multiple of 20 times for Blockbuster’s cash flow, so why would you part with it?”
