Viacom Inc. agreed to buy out joint-venture partner BHC
Communications' 50 percent stake in United Paramount Network for a bargain-basement
price of $5 million.
The deal, announced March 20, came four days after a New
York court dismissed a breach-of-contract suit BHC had filed against Viacom, seeking to
block its merger with CBS Corp. The ruling forced BHC, a subsidiary of Chris-Craft
Industries Inc., to respond to a buy-sell clause in the UPN joint venture agreement that
Viacom exercised in February.
"While we were disappointed with the court's
decision, we believe that UPN and our shareholders will now best be served by ending any
further uncertainty through our sale to Viacom," BHC president William Siegel said in
a statement.
BHC launched UPN, the fifth broadcast network, with
Viacom's Paramount Television Group in July 1994. While BHC owned 100 percent of UPN
from its inception, Viacom exercised an option to acquire 50 percent of the network in
January 1997.
UPN is a huge cash drain, posting a $149.5 million
operating loss for the nine months ended Sept. 30, according to BHC's most recent
earnings statement.
"You have to look at the losses that are incurred and
the losses going forward," a Viacom source said, explaining how the company was able
to acquire UPN for such a low price.
Once the CBS-Viacom merger closes -- likely next month --
Viacom will own two broadcast networks, which is currently illegal under federal
regulations. Viacom hopes the FCC will grant it a waiver to allow it to own both CBS and
UPN, or a temporary waiver that would allow the merger to close and give the commission
more time to study the issue, a Viacom source said.
The company could also be forced to divest UPN.
Some cable operators have expressed concern that Viacom
will distribute programming that has been traditionally exclusive to cable via CBS after
the merger closes. The network's Saturday-morning block, for example, is expected to
draw from Nickelodeon's programming library.
Paul Kagan Associates analyst Deana Myers said not to
expect Viacom to run much more Paramount-produced programming on UPN, noting that 30
percent of the network's schedule came from Viacom at the beginning of the season.
"They are certainly going to shop the shows to try to
get the best price," she added.
UPN currently runs eight Paramount-produced shows,
including Star Trek: Voyager, one of its more popular programs, and The Beat,
a police drama it launched last week, spokesman Paul McGuire said.
Despite the pending merger, UPN is proceeding with its
regular development schedule with shows "we have developed from a variety of
suppliers," McGwire said.
