...As Viacom prepares to buy out company.

Viacom Inc. had been trying to unload Spelling Entertainment Group Inc. almost from the day it acquired 80 percent of Spelling - part of its 1994 purchase of Blockbuster Entertainment. When no acceptable bids came through the sale offers were rescinded.

But then last month, Viacom launched an about face, offering to buy the 20 percent of Spelling it doesn't already own and merge Spelling's operations into its Paramount Television Group.

Why the change in strategy?

Because, according to analysts as well as executives from both companies, Los Angeles-based Spelling has gotten its financial act together, having undertaken a dramatic restructuring that already is increasing revenues and turning red ink into black.

Over the past 12 months. Spelling, best known for "Beverly Hills 90210," "Dallas," "Charlie's Angels" and the soon-to-be-defunct "Melrose Place," has slashed several of its entertainment divisions, including its feature film and video distribution branches. In addition, the company sold an entertainment television channel in Latin America.

As a result, Spelling's net loss for the year ended Dec. 31 was $7.3 million, a significant improvement from a net loss of $52.3 million in 1997.

The improvement seems to be accelerating. Last week, Spelling reported that net income for the first quarter ended March 31 was $3.2 million, compared with $1.6 million for the like period a year ago.

Spelling spokeswoman Nancy Bushkin said the strategy was to divest any extraneous entertainment outlets and focus exclusively on TV programming.

The decision struck a chord with Viacom.

"Having completed a strategic refocusing on its core television business, Spelling is a perfect fit with Viacom's entertainment business," Sumner Redstone, Viacom's chairman and CEO, said in a statement. "Now, by fully integrating Spelling into the Viacom family, with the efficiencies and economies of scale we can bring to bear, both Spelling's and Paramount's operations will be greatly enhanced."

In mid-March, Viacom's board authorized buying Spelling common stock on the open market for $9 a share, or $167 million. The next day, Spelling stock jumped from $6.75 to $9, where it has since hovered.

Prior to launching its tender offer, Viacom owned about 75 million of Spelling's 93 million common shares outstanding. The buyout, once complete, would add Spelling to Viacom's list of wholly owned entertainment operations, including MTV Networks, Showtime Networks and 19 television stations.

Viacom spokeswoman Susan Duffy said Spelling's sales and administrative functions would be redundant with those at Paramount Television Group, but she added that it was too early to talk about possible Spelling layoffs.

Spelling Entertainment created a special committee of board members to study the Viacom proposal. Legal and financial advisers also have been brought on board to go over the deal.

According to the 1998 annual report, Spelling employees own slightly less than 10 percent of the outstanding common stock. Certain Spelling employees, consultants and directors also have stock options.

The largest shareholders among Spelling employees, according to a 10-K filing, are company founder and Vice Chairman Aaron Spelling, with 917,250 shares, and President Peter H. Bachmann, with 467,500 shares.

Spelling and Bachmann declined comment.

There has been some speculation among investors that Spelling management might ask Viacom to raise its tender offer to $10 or $11 in cash per share.

There is no set deadline to finish the review of the proposal, and it is anticipated that the board would likely approve whatever recommendation is made by its special committee.

"At the moment, it's in the board of director's hands," said Bushkin. "We're in a wait-and-see kind of attitude."