Market Bets On A Westinghouse-cbs Deal

July 19, 1995|By New York Times News Service

NEW YORK -- CBS' stock jumped $1.25 yesterday to close at $71 as investors bet heavily that Westinghouse Electric Co. could arrange financing for a $5 billion bid for the media giant.

One person with knowledge of the discussions said an offer might come within the next week and that the Westinghouse board was solidly behind its chairman, Michael H. Jordan, in favoring an acquisition of CBS.

A key question is whether Westinghouse, which is already heavily leveraged, can borrow the money for the purchase. One executive close to the negotiations said yesterday that Westinghouse's bankers in the deal, J. P. Morgan and Chemical Bank, were optimistic.

CBS Chairman Laurence Tisch, who characteristically returns telephone calls, was said to be in meetings yesterday and not available for comment. Mr. Jordan of Westinghouse was also not available.

One executive close to Mr. Jordan said that he wanted to expand the company's broadcasting holdings and that the board strongly supported it. "He wants to get the debt paid down and take advantage of some of the synergies in Westinghouse's businesses," this person said.

Westinghouse, which has been under intense pressure recently to pay down debt, has a clutch of assets ranging from defense businesses to power plants and broadcasting. It has about $2.4 billion in debt to $1.7 billion in equity in continuing operations.

To accomplish a merger, Westinghouse would probably attempt to sell some assets, notably its defense business, which has been marked by consolidation in recent months.

One motive for the move for Mr. Jordan is that he needs to lift Westinghouse's stock, which is slightly lower now -- it closed yesterday at $13.625 a share, down 12.5 cents -- than when he joined the company in June 1993. It traded around $14 during that month.

Another indication of Wall Street's disenchantment is that only 32 percent of the stock is held by institutions.

By going more heavily into broadcasting -- Westinghouse already has five television stations and 18 radio stations -- the company would be betting on the business that generates its highest profit margins.

A purchase would allow Westinghouse to take advantage of an existing relationship with CBS. The two companies recently merged their sales organizations.

They also have a plan, awaiting approval at the Federal Communications Commission, to put one Westinghouse station and three CBS stations into a joint venture that Westinghouse would manage. It would retain a 51 percent stake.

However, acquiring CBS is far from a done deal. "I think the financial side is a stretch," said Russell Leavitt, who follows Westinghouse for Salomon Bros.

For one thing, although Westinghouse is a familiar brand name, its market capitalization is only $4.9 billion, and it would be buying a company roughly its own size.

Still, Westinghouse has the capacity to borrow over $1 billion more in its revolving credit line. And some analysts said yesterday that a sale of the Electronic Systems Group, which is based in Linthicum, could fetch as much as $2 billion.

Because CBS' estimated 1995 cash flow of nearly $500 million could virtually erase its own debt, the merged companies could use CBS' balance sheet to borrow an additional $2.5 billion or so, media analysts said yesterday.

Still, any merger would hurt Westinghouse's credit rating. Yesterday, Standard & Poor's said that it was putting the two companies on credit watch and that it could affect Westinghouse, which now has a triple-B-minus rating, the lowest investment grade rating. A merger could result in the company having a noninvestment-grade rating.

That could make it particularly difficult for Westinghouse in its power plant business. "I think they need a healthy financial structure to support the power plant business," Mr. Leavitt said yesterday.

Moreover, the company would not be getting CBS cheap. At $80 a share, it would be paying roughly 11.3 times cash flow. Barry Diller, the former chairman of QVC, has indicated that he would not be interested in leading a bid for CBS at that price. It was not clear yesterday whether Westinghouse had attempted to bring Mr. Diller into its deal.

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