Fin-syn changes may spur waves of deals: buyouts, mergers in the wings if FCC rule is scrapped.

Fin-syn changes may spur wave of deals

Entertainment and television network stocks bounced around on the market last week, as attention focused on possible mergers that could result from easing of the industry's financial interest and syndication rules by the Federal Communications Commission.

CBS Inc.'s stock shot up $5.25 on March 4 and $8.125 on March 5, to close at $187.125, on renewed speculation of a pending buyout by Walt Disney Co. That acquisition would become possible if the rules regarding networks' financial interest in programming are relaxed.

A Disney-CBS merger has been rumored to be under discussion for more than a year.

"CBS stock moved up on speculation that an event will occur," said analyst Chris Dixon with Kidder Peabody & Co. "There's no question that there will be continued speculation as to what life will be like after March 14. The bottom line is that there are a number of studios and networks that may be considering some kind of merger."

Capital Cities/ABC Inc.'s stock shot up $10 on March 5 to close at $498.5. While the leap was a smaller one on a percentage basis than the growth in CBS stock prices, Dean Witter Reynolds analyst Alan Gould noted that "there's a possibility Capital Cities will be bought."

"Because of fin-syn, the Street is focusing on the potential transactions, the mergers," Gould said.

Capital Cities/ABC spokeswoman Julie Hoover said the company "never comments on stock fluctuations."

NBC is owned by General Electric Co., leaving CBS as the only "stand-alone network," in Dixon's words. CBS officials did not return repeated phone calls last week.

Another company rumored to be ripe for a takeover is Paramount Communications Co., which announced March 5 that it lost $7.3 million in the fiscal quarter ended Jan. 31. Because of a possible takeover, Gould said a change in the FCC rules would help Paramount, even though most other production companies oppose revocation of fin-syn regulations.

The television group of Paramount Pictures also remains officially opposed to changes in the rules.

In testimony before the FCC in December, television group president Mel Harris confined his remarks to opposing syndication freedoms for networks. Further, Martin S. Davis, chairman of Paramount Communications, wrote a letter to FCC Chairman Alfred Sikes last year urging that the fin-syn rules remain in place.

Paramount, a New York-based entertainment firm, owns Paramount Pictures in Los Angeles, the Simon & Schuster publishing group, 50 percent of the USA cable network, movie theaters, TV stations and other interests.

Gould also recommended the stock of Burbank-based Disney, which he believes is undervalued. Disney stock rose $3 on March 5 and .625 on March 6, closing at $126.625.

Dixon said Disney stock may be responding to the possibility of foreign investment in the company that would fall short of a buyout but increase the trading price.

CBS and Disney stock both rose in December when CBS announced it was buying back 44 percent of its own outstanding shares at $190 per share. Gould said the buyback made CBS a leaner, more attractive takeover target, made it possible for Disney to buy the company without a stock trade and improved the Burbank company's position in a potential merger.

But Rich Frank, president of Walt Disney Studios, said he is opposed to easing the fin-syn regulations.

"I believe in the long run it will reduce the revenue we're able to make through profits of successful shows and therefore will discourage us from investing up front in more varied and new ideas," Frank said.

Another company that stands to benefit from a reversal of the fin-syn rules is Fox Inc., which is operating as a fourth network exempt from the rules under a one-year waiver that expires May 4.

Stock in News Corp., Australian Rupert Murdoch's parent company of Fox, was up .75 on March 5 and .50 March 6, to close at $14.25.

Officials representing Fox on the fin-syn issue also failed to return phone calls last week.

Report Kara Glover contributed to this report.