Westinghouse Electric Corp. Announces $5.4 Billion Agreement to Purchase CBS Inc.

Strategic Insights -

Westinghouse Electric Corp. has announced a $5.4 billion agreement to purchase CBS Inc., seeking to move into the top tier of media giants. The deal, announced on August 1, is the second buyout of a television network in two days following Walt Disney Co.'s stunning agreement to buy Capital Cities/ABC for $19 billion. CBS Chairman and Chief Executive Officer Laurence Tisch expressed confidence in the deal, stating that he believes it will happen and sees no impediments along the way. The agreement is subject to regulatory approvals and is expected to be completed by the end of 1995 or early 1996.

Key Takeaways:

  • The agreement is valued at $5.4 billion, with CBS shareholders receiving $81 a share in cash for their stock.
  • The deal is subject to regulatory approvals and is expected to be completed by the end of 1995 or early 1996.
  • Westinghouse will receive a 'break-up fee' equal to somewhere between 2.5 percent and 2.75 percent of the deal's value, or between $135 million and $148.5 million, if CBS backs out in favor of another offer.
  • The new company, to be called Westinghouse-CBS, will be headquartered in Pittsburgh at Westinghouse's current headquarters.
  • Michael H. Jordan, chairman and chief executive officer of Westinghouse, will hold the same title in the new company.
  • The new company plans to expand CBS, possibly into cable and syndicated programming, and will sell off another $1.5 billion to $2 billion in assets during the next two years.
  • Westinghouse plans to be a major player among media giants and pledged that broadcasting will contribute 50 percent of the merged company's operating earnings within two years.
  • The announced deal may have spurred Westinghouse's move to preclude the possibility of a rival bid emerging.
  • Seagram, which recently took majority control of MCA Inc., and TBS are believed to be potential bidders, but such offers would face considerable financing and regulatory hurdles.
  • Traders have bid up CBS stock about $12 since July 17 when the Westinghouse rumors started.

Statistics:

  • The agreement is valued at $5.4 billion.
  • CBS shareholders will receive $81 a share in cash for their stock.
  • Westinghouse will receive a 'break-up fee' equal to somewhere between $135 million and $148.5 million.
  • The new company plans to sell off another $1.5 billion to $2 billion in assets during the next two years.
  • Westinghouse had 1994 revenues of $8.85 billion.
  • The new company will have 15 television stations covering nearly one-third of the nation in seven of the country's top 10 markets.
  • The new company will have the nation's largest radio station group with 39 stations covering approximately 35 percent of the nation.

Sources:

  • Westinghouse Electric Corp. press release (August 1)
  • Walt Disney Co. press release (August 1)
  • Capital Cities/ABC press release (July 31)
  • New York Times (August 2)