Viacom and CBS Corp are to merge in a $36 billion-plus (€34 billion) deal which will create a media and entertainment industry giant with an enterprise value of about $80 billion and revenues of more than $20 billion a year.
The move, which will displace Time Warner as the industry leader in terms of market capitalisation plus debt, is the first in an expected wave of consolidation moves following the introduction last month of new television industry ownership rules by the US Federal Communications Commission.
The combination will link Viacom assets, such as Paramount Pictures and the MTV cable music service, with the CBS broadcast network and Infinity, the leading US radio company built by Mr Mel Karmazin, now CBS president and chief executive.
Together with CBS's collection of outdoor advertising sites and the partners' Internet interests, the new entity would be "the largest seller of advertising across the media landscape", the companies claimed.
"Reaching the greatest number of viewers and listeners of any media enterprise, the new Viacom will be the premier outlet for advertisers in the world," they said.
The merger will also set challenges for other media groups, including Walt Disney's ABC network and General Electric's NBC, as they look for opportunities to expand and wring profits from their TV operations.
More transactions are expected following the decision last month to end a 50-year ban, which prevented a single company from owning more than one TV station in a single regional market. NBC, the only profitable network of the seven in the US, is negotiating with Paxson Communications.
Analysts had expected the Viacom/CBS deal to be limited to transactions involving Viacom's television stations. But Mr Sumner Redstone, Viacom group chairman and chief executive, and Mr Karmazin concluded a full merger was the logical move.
Many in Wall Street had dismissed that possibility because of the potential for strife between the powerful personalities in charge.
Mr Redstone and Mr Karmazin presented a united front yesterday as they outlined an arrangement that marks the CBS chief as the chosen guardian of Viacom's future.
Mr Redstone (76) will remain as chairman and retain ultimate control of the company through his dominant holdings of class A voting shares. Mr Karmazin (55) will become president and chief operating officer, with full control of all operations.
Terms of the deal include a $1 billion break-up payment should either party decide not to proceed with the merger, expected to be completed by mid-2000.
Some TV stations may have to be sold and Viacom will have to shed its 50 per cent stake in the fading UPN broadcast network to meet ownership rules.
Analysts said the regulatory obstacles should be easily overcome, and suggested the rules could change further in Viacom's favour before the transaction closed.
Viacom, advised by Morgan Stanley Dean Witter, will swap 1.085 of its class B shares for each CBS unit, valuing the deal at $48.89 a share. CBS was advised by Cravath, Swaine & Moore.
